Banking Leverage Ratio
A regulatory requirement measuring a bank's Tier 1 capital as a percentage of its total exposure, ensuring minimum equity buffers.
What is Banking Leverage Ratio?
The banking leverage ratio is a non-risk-based capital requirement under the Basel III framework that measures a bank's Tier 1 capital as a percentage of its total leverage exposure (on-balance-sheet assets plus off-balance-sheet items). Unlike risk-weighted capital ratios, the leverage ratio treats all exposures equally regardless of perceived riskiness, serving as a backstop to prevent banks from using risk-weight optimization to become excessively leveraged. Under Basel III fully implemented in the U.S., bank holding companies must maintain a minimum Tier 1 leverage ratio of 4%, while systemically important banks (G-SIBs) face supplementary leverage ratio (SLR) requirements of 3–5% above that minimum.
Example
JPMorgan Chase reported a Tier 1 leverage ratio of 6.5% in Q4 2024, well above the minimum 4% requirement. This means that for every $100 of total exposure on its balance sheet (loans, securities, derivatives, and off-balance-sheet commitments), the bank holds $6.50 of high-quality Tier 1 capital—providing a buffer against unexpected losses regardless of how individual assets are risk-weighted.