1、 www.crs.gov | 7-5700 October 31, 2014 Leverage Ratios in Bank Capital Requirements This In Focus provides a summary of leverage ratios used in bank capital requirements. It also explains the concept of leverage and the rationale behind a leverage ratio. Leverage and the Financial Crisis What Is Lev
2、erage? A firm or individual can use debt (borrow) or their own funds (capital) to purchase assets. Generally, leverage is the use of debt, and increasing the use of debt relative to capital is referred to as becoming more leveraged. Why Are Banks Leveraged? In the simplest form of banking, a bank ta
3、kes in deposits and uses them to make loans. This is leveraged finance because the bank is using debt (deposits) to acquire assets (loans). Banks can also use capital to fund loans, but if the rate of return paid on capital is higher than the rate paid to depositors, it would be less costly for a ba
4、nk to finance its activities with deposits. Why Was Leverage an Issue in the Financial Crisis? A financial firm may use leverage to reduce its funding costs. But if assets fall in value, financial firms need capital to absorb those losses. Greater leverage means firms have less capital relative to a
升级VIP 