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Feb 17, 2014

Leverage ratio versus capital ratio in the United States

The blog Capital Issues made a graph comparing leverage capital ratio's with risk-based capital ratio's for U.S. banks. A leverage ratio measures the capital of a bank compared to it's total assets, while the risk-based capital ratio's measure the capital compared to the risk-based assets. In the latter measure different assets are weighted differently based on their risk, as set by regulation rules. The graph shows the top of the leverage curve left to the top of the risk-based curve. Also there are a lot more banks with high risk-based capital ratio's under the risk-based measure.
Capital Issues

1 comment:

  1. This looks interesting, but I'm still not sure I am clear I understand the semantics. What can we conclude from this graph about the strength of US banks? I could only guess, from all of this red, that this is not a good thing.