Multiple choice

What does the term ‘leverage’ mean in the banking sector?

  1. Increase in capital

  2. Ratio of assets to capital

  3. Decrease in capital

  4. An asset, including a leased asset
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In banking, leverage refers to the ratio of a bank's total assets to its capital (equity). It measures how much the bank has borrowed relative to what it owns and indicates the level of risk the bank is taking. A higher leverage ratio means more assets per unit of capital, indicating greater risk-taking. This is a key metric in bank regulation under Basel norms. Leverage does not mean increase or decrease in capital itself, nor does it refer to a leased asset.

Keep practicing — related questions