The downside to a bank having a high leverage ratio is that a decline in asset value magnifies losses.

Name: The downside to a bank having a high leverage ratio is that a decline in asset value magnifies losses.
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A high leverage ratio means the bank has borrowed more funds to invest in assets. If the value of those assets declines, the bank will still owe the same amount of debt, but with fewer assets to cover it, resulting in magnified losses.

The Downside to a Bank Having a High Leverage Ratio