Tier 1 Leverage Ratio

Loading the player...

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.

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.

RELATED TERMS
  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. Bank

    A financial institution licensed as a receiver of deposits. There ...
  5. Tier 2 Capital

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

    The entity responsible for overseeing the monetary system for ...
Related Articles
  1. Economics

    Explaining the Tier 1 Leverage Ratio

    The Tier 1 leverage ratio measures a bank’s core capital against its total assets.
  2. Markets

    Material Adverse Effect A Warning Sign For Stocks

    Learn what this phrase means and how to spot it in a company's financial statements.
  3. Personal Finance

    Using Economic Capital To Determine Risk

    Discover how banks and financial institutions use economic capital to enhance risk management.
  4. Investing News

    Quantitative Easing: Does It Work?

    This controversial monetary policy has been used by some of the world's most powerful economies. But does it work?
  5. Personal Finance

    Is Your Bank On Its Way Down?

    Find out how the Tier 1 capital ratio can be used to tell if your bank is going under.
  6. Economics

    Does Big Money Hurt or Help Clinton and Rubio?

    Marco Rubio and Hillary Clinton lead their parties in raising money from Wall Street. Is that a help or a hindrance?
  7. Taxes

    Why People Renounce Their U.S Citizenship

    This year, the highest number of Americans ever took the irrevocable step of giving up their citizenship. Here's why.
  8. Credit & Loans

    A FICO-free Loan? See SoFi's Super Bowl Ad

    Non-bank lender SoFi will air its first TV ad during Super Bowl 50. Here's how it's challenging big banks by providing an alternative approach to loans.
  9. Personal Finance

    What it Takes to Get a Green Card

    Grounds for getting a green card include having family members in the U.S., being a certain type of refugee or specialized worker, or winning a lottery.
  10. Economics

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
RELATED FAQS
  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. What is the Writ of Mandamus?

    A writ of mandamus is a court order issued by a judge at a petitioner’s request compelling someone to execute a duty he is ... Read Full Answer >>
  3. Does the FDIC cover credit unions?

    The Federal Deposit Insurance Corporation (FDIC) does not cover credit unions. The FDIC only insures deposits in banks and ... Read Full Answer >>
  4. Are UTMA accounts escheatable?

    Like most financial assets held by institutions such as banks and investment firms, UTMA accounts can be escheated by state ... Read Full Answer >>
  5. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  6. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center