Leverage Ratio

The leverage ratio is a measure of a bank's financial strength, showing how much of its assets are funded by its own equity (owner’s funds) versus borrowed money. It’s calculated by dividing the bank’s core capital (equity) by its total assets. A higher leverage ratio indicates the bank has a larger buffer of own funds relative to its assets, making it more resilient to losses. Conversely, a lower ratio suggests the bank is more leveraged and potentially riskier. Regulators use this ratio to ensure banks maintain adequate capital and reduce systemic risk.