What is bank leverage ratio and what is the specific calculation formula?

Meaning of leverage ratio:

Leverage ratio is calculated as Tier 1 capital divided by total assets. Includes on-balance sheet and off-balance sheet assets. On-balance sheet assets are determined based on nominal amounts, while off-balance sheet assets have conversion issues.

Among them, non-derivative off-balance sheet assets are transferred into the balance sheet according to a credit risk conversion factor of 100, while for financial derivatives transactions, the current risk exposure method is used to calculate risk exposure.

Calculation method:

Leverage ratio = (Tier 1 capital - Tier 1 capital deduction)/Adjusted balance of on- and off-balance sheet assets * 100 Adjusted balance of on- and off-balance sheet assets =Adjusted on-balance sheet asset balance Adjusted off-balance sheet asset balance - Tier 1 capital deduction item

What is the bank leverage ratio?

Leverage is the same as a seesaw, one end Go down and the other end will come up. If the fulcrum is not in the middle, if this end goes down a little, the other end will come up very high.

The so-called leverage ratio is generally used in options, foreign exchange margin trading, etc. For example, you can spend $1,000 to buy pounds worth $100,000. After the pound appreciates, you can sell the "pounds" in your hand to obtain the buying and selling price difference brought by the pounds worth $100,000. This is the so-called foreign exchange margin trading, where 100,000/1,000=100 times is called the leverage ratio. For every $1 increase (decrease) in USD/GBP on this trade, your loss (gain) increases by $100.

Dingzi is very hard and earning points is not easy.

What is the formula for calculating the leverage ratio of commercial banks?

Leverage ratio = (Tier 1 capital - Tier 1 capital deduction)/Adjusted balance of off-balance sheet assets * 100

Adjusted balance of off-balance sheet assets = After adjustment Off-balance sheet asset balance after adjustment of on-balance sheet asset balance - Tier 1 capital deduction item

What is the bank capital leverage ratio formula 15 points

Bank leverage ratio formula: Leverage Ratio: (Capital Asset Ratio/Owned Capital Ratio) = Core Capital/Assets.

What is the leverage ratio?

The concept of financial leverage: No matter how much the company's operating profits are, debt interest and dividends on preferred stocks are fixed. When earnings before interest and taxes increase, the fixed financial costs borne by each dollar of earnings will be relatively reduced, which can bring more earnings to ordinary shareholders. The impact of this debt on investor returns is called financial leverage. Financial leverage affects a company's profit after tax rather than its profit before interest and tax. The financial leverage ratio is equal to the ratio of operating profit to pre-tax profit, which reflects the impact of financial expenses (interest) on the profits of insurance companies due to the existence of fixed debt. To a certain extent, it reflects the degree of corporate debt and the company's solvency. The higher the financial leverage ratio, the higher the interest expense, resulting in a lower ROE indicator. To put it simply, it means to enlarge your funds. In this way, your capital cost will be very small, and at the same time, your risks and returns will be enlarged, because the percentage of profit and loss is not based on the original funds, but on the enlarged funds. . When the Basel Committee on Banking Management learned from the lessons learned from the 2008 financial crisis and improved the New Capital Accord, it proposed the leverage ratio as a regulatory indicator and set a lower limit of 3. Leverage ratio = core capital / risk exposure of total on- and off-balance sheet assets One of the important causes of the 2008 financial crisis was the excessive accumulation of on- and off-balance sheet leverage ratios in the banking system. Leverage accumulation has also been a feature of previous financial crises, such as the 1998 financial crisis. At the height of the crisis, banks were forced to reduce leverage, amplifying pressure on falling asset values ??and further exacerbating the positive feedback loop between losses, a reduction in banks' capital bases and a contraction in credit. Therefore, the Basel Committee will introduce leverage ratio requirements, aiming to achieve the following goals: (1) Set a floor for the accumulation of leverage ratios in the banking system, which will help mitigate the risks caused by unstable deleveraging and the impact on the financial system and entities negatively impact the economy.

(2) Using simple, transparent indicators based on total risk as a supplementary indicator of risk capital ratio provides additional protection against model risks and measurement errors. Leverage calculations should be comparable across economies and adjust for differences in accounting standards. A credit risk conversion factor of 100 will apply to certain off-balance sheet items. And the interaction between leverage and risk-to-capital ratio will be tested. The Basel Committee has set the leverage ratio as a reliable complementary measure to risk capital requirements, incorporating the leverage ratio into the Pillar 1 framework based on appropriate assessment and calibration. In 2011, the China Banking Regulatory Commission issued guidance on the implementation of new regulatory standards for China's banking industry. The leverage ratio of commercial banks shall not be less than 4.

Deleveraging of financial institutions and what the leverage ratio means

The so-called leverage, in a narrow sense, refers to the ratio of assets to shareholders' equity; in a broad sense, it refers to the use of liabilities to control a larger scale of assets with a smaller amount of capital, thereby expanding profitability or purchasing power. . Since the outbreak of the subprime mortgage crisis, the term "deleveraging" has been popular from abroad to China. The so-called "deleveraging" refers to the trend of companies or individuals reducing the use of financial leverage and returning the money they originally "borrowed" through various methods. The impact of deleveraging So, how will deleveraging affect current capital and capital markets? The latest view of US bond king Bill Gross is that the deleveraging process in the United States has led to an overall decline in the prices of the country's three major asset classes (stocks, bonds, and real estate). Gross believes that the global financial market is currently in the process of deleveraging, which will lead to a decline in the prices of most assets, including things like gold, diamonds, and grains. "We often say that there are always opportunities somewhere in the market, but I would say now is not the time." Gross said that once we enter the deleveraging process, including risk spreads, liquidity spreads, market volatility levels, and even Term premium will increase. Asset prices will take a hit as a result. Moreover, this process will not be one-way, but will influence and strengthen each other. For example, when investors realize the risks of subprime mortgages and de-leverage their investments in subprime bonds, other bonds that have arbitrage relationships with these bonds, other investors who hold these bonds, and other varieties they hold will all suffer the effects. This process may spread from "defective" bonds to flawless bonds, and ultimately affect market liquidity, thereby impacting the real economy. Leverage ratio generally refers to the ratio of total assets to equity capital in the balance sheet. A high leverage ratio means that financial institutions can obtain higher returns on equity during economic prosperity, but when the market reverses, they will face the risk of a sharp decline in returns. Financial institutions such as commercial banks and investment banks generally adopt a leveraged operating model. Before the subprime mortgage crisis broke out, the leverage ratio of U.S. commercial banks was generally 10-20 times, and the leverage ratio of investment banks was usually around 30 times. Advantages of the Leverage Ratio The main advantages of introducing the leverage ratio as a supplementary measure of capital supervision are: First, it reflects the role of real money invested by shareholders in protecting depositors and resisting risks, which is conducive to maintaining the bank's minimum capital adequacy level and ensuring that Banks have a certain level of high-quality capital (common stock and retained earnings). Second, it can avoid the complexity of risk-weighted capital adequacy ratios and reduce capital arbitrage space. The lessons from this financial crisis show that under the framework of the New Capital Accord, if commercial banks take advantage of the complexity of the New Capital Accord to conduct regulatory arbitrage, it will seriously affect the bank's capital level. Relevant data show that some banks' core capital adequacy ratios and leverage ratios diverged. At the end of 2008, Credit Suisse's core capital adequacy ratio was 13.1%, but its leverage ratio was only 2.9%; UBS's core capital adequacy ratio was 11.5%, but its leverage ratio was only 2.6%. By introducing the leverage ratio, overly complex measurement issues can be avoided and the risks of risk measurement can be controlled. The third is to help control the excessive growth of bank balance sheets. By introducing the leverage ratio, the scale of capital expansion is controlled within a certain multiple of the bank's tangible capital, which is conducive to controlling the excessive growth of commercial banks' balance sheets.

Disadvantages of the leverage ratio The leverage ratio also has its inherent flaws: First, it does not differentiate between assets with different risks and requires the same capital for all assets, which makes it difficult to encourage banks to effectively control asset risks. Second, commercial banks may circumvent regulatory requirements on leverage ratios by externalizing their balance sheets. Third, the leverage ratio lacks internationally unified standards and definitions and is highly dependent on accounting standards. Since the items related to the leverage ratio mainly come from the balance sheet and are greatly affected by accounting consolidation and accounting confirmation rules, it is difficult to compare this indicator in different countries when accounting standards of various countries are quite different.

What does deleveraging in the banking industry mean?

Deleveraging in the banking industry means reducing banks’ support for investors. Because we know that speculators use bank leverage to be particularly powerful. For example, if you don’t use bank money to buy a house, speculators, you can only buy a house worth 1 million yuan at most. If the house is worth 100 yuan Wan, you can only buy one set at most. If you use a bank for leverage, reduce the down payment to 10. So for a house worth 1 million, buy one for 100,000 yuan. You can buy ten sets and enlarge it 10 times. That is to say, if you earn 10, you earn 100, and if you earn 20, you earn 200.

How is the non-risk leverage ratio defined in commercial banks

Tier 1 capital/off-balance sheet risk exposure

What is "corporate leverage ratio"

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The value of debt/owner's equity is the leverage ratio.