Tier 1 Leverage Ratio


DEFINITION of 'Tier 1 Leverage Ratio'

The relationship between a banking organization's core capital and total assets. The Federal Reserve develops capital adequacy guidelines for bank holding companies. The Tier 1 leverage ratio is calculated by dividing Tier 1 capital ratio by the firm's average total consolidated assets. The Tier 1 leverage ratio is an evaluative tool used to help determine the capital adequacy and to place constraints on the degree to which a banking firm can leverage its capital base.


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BREAKING DOWN 'Tier 1 Leverage Ratio'

Strong bank holding companies, rated composite 1 under the BOPEC (Bank subsidiaries, Other subsidiaries, Parent, Earnings, Capital) rating system of bank holding companies, must have a Tier 1 leverage ratio of 3%. For all other banks, the minimum ratio is 4%. Any banking organizations that have supervisory, financial, operational or managerial difficulties are expected to maintain capital ratios above the minimum levels. In addition, bank firms that are expecting or going through significant growth are expected to maintain ratios well above the minimum levels as a hedge against risk.

  1. Investment Bank - IB

    A financial intermediary that performs a variety of services. ...
  2. Core Capital

    The minimum amount of capital that a thrift bank, such as a savings ...
  3. Tier 1 Capital

    A term used to describe the capital adequacy of a bank. Tier ...
  4. Tier 2 Capital

    One of two categories by which a bank's capital is divided. Tier ...
  5. Central Bank

    The entity responsible for overseeing the monetary system for ...
  6. Bank

    A financial institution licensed as a receiver of deposits. There ...
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  1. How can I calculate the leverage ratio using tier 1 capital?

    The tier 1 leverage ratio is used to determine the capital adequacy of a bank or a holding company, and it places constraints ... Read Full Answer >>
  2. Does the FDIC cover credit unions?

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  5. Do working capital funds expire?

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