Simple indicators better for regulators, BoE economist argues

The experience of the 2008 crisis shows that leverage ratios are better warning signs than more complex measures such as capital ratios

Based on the experience of the 2008 financial crisis, prudential regulators should pay more attention to simple ratios such as leverage, and less to more complex and model-dependent ones such as risk-based capital, Bank of England economist Sujit Kapadia argued in a seminar at the London School of Economics last Friday.

Kapadia, senior manager for financial stability in the Bank's prudential policy division, called for regulators to consider simpler decision-tree methods in determining whether