The leverage ratio is the ratio of a bank's
A)assets divided by its liabilities.
B)income divided by its assets.
C)assets divided by capital.
D)capital divided by its total liabilities.

Question

Quizplus · Accepted Answer

The leverage ratio is calculated by dividing a bank's total assets by its tier 1 capital. Tier 1 capital includes shares issued to the public and retained earnings. This ratio helps to determine how much leverage a bank has, or how much of its assets are funded by borrowed money. Banks with a high leverage ratio are considered more risky than those with a lower ratio. Therefore, option C is the correct answer as it represents the assets to capital ratio.

The Leverage Ratio Is the Ratio of a Bank's