Double Leverage


DEFINITION of 'Double Leverage'

When a bank holding company conducts a debt offering to acquire a large equity stake in a subsidiary bank. Ideally, dividends earned on the subsidiary company's stock are used to finance the holding company's interest payments.

BREAKING DOWN 'Double Leverage'

Because banks have strict capital requirements on the amount of debt they can hold compared to other types companies, double leverage can be used by the parent holding company as an indirect workaround to give the bank access to debt-based capital. Some academics suggest that the fact that banks are willing to use double leverage may suggest that regulators should allow banks to use more debt-based financing.

  1. Holding Company

    A parent corporation that owns enough voting stock in another ...
  2. Capital

    1) Financial assets or the financial value of assets, such as ...
  3. Leverage

    1. The use of various financial instruments or borrowed capital, ...
  4. Bank

    A financial institution licensed as a receiver of deposits. There ...
  5. Subsidiary

    A company whose voting stock is more than 50% controlled by another ...
  6. Subsidiary Bank

    A type of foreign bank that is incorporated in the host country ...
Related Articles
  1. Fundamental Analysis

    Analyzing A Bank's Financial Statements

    A careful review of a bank's financial statements can help you identify key factors in a potential investment.
  2. Personal Finance

    How Basel 1 Affected Banks

    This 1988 agreement sought to decrease the potential for bankruptcy among major international banks.
  3. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  4. Stock Analysis

    Boeing Co. Stock: A Dividend Analysis

    Learn about The Boeing Company, its financials and its dividends, which may signal further dividend growth due to its increasing cash flow and earnings.
  5. Stock Analysis

    Starbucks' 6 Key Financial Ratios

    Discover the key financial ratios that are important when analyzing the financial health, profitability and efficiency of Starbucks' operations.
  6. Options & Futures

    Ultra ETFs Are Not Your Father's ETFs

    Ultra ETFs can add huge returns to your portfolio, but there's a lot of risk and volatility involved with these leveraged ETFs.
  7. Stock Analysis

    Walt Disney Stock: A Dividend Analysis

    Learn about the Walt Disney Corporation, its dividend policy, historic dividend yields and the company's dividend prospects going forward.
  8. Stock Analysis

    Schlumberger Stock: A Dividend Analysis

    Examine the strength and potential of major oil service company Schlumberger Ltd. (NYSE: SLB), considered to a solid dividend investment.
  9. Stock Analysis

    Kinder Morgan Stock: A Dividend Analysis

    Learn about Kinder Morgan through an analysis of its dividend policy and dividend yields, and discover how current industry trends affect its dividends.
  10. Stock Analysis

    Johnson & Johnson Stock: A Dividend Analysis

    Explore a detailed analysis of Johnson & Johnson's dividend policy, and learn about the dividend policies of its competitors, Pfizer, Inc. and Merck & Company, Inc.
  1. Can mutual funds use leverage?

    Traditionally, mutual funds have not been considered leveraged financial products. However, a number of new products have ... Read Full Answer >>
  2. How do hedge funds use leverage?

    Hedge funds use several forms of leverage to chase large returns. They purchase securities on margin, meaning they leverage ... Read Full Answer >>
  3. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  4. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  5. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  6. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center