The Tier 1 leverage ratio is the ratio that is most strongly associated with the true amount of capital that is being leveraged and therefore is a good way to understand a banks current leverage.

Tier 1 Leverage ratio defines the connection between a banks adjusted total assets (average total consolidated assets) and it’s core capital. It is generally calculated using the following formula:

Tier 1 Leverage Ratio = Tier 1 Capital / Adjusted Assets

The minimum ratio allowed for strong banks that have been rated ‘1’ by BOPEC are required to have a minimum Tier 1 Leverage ratio of 3%. All other banks are required to maintain a minimum Tier 1 Leverage ratio of 4%.

To read more about the Tier 1 Leverage Ratio go to the FDIC link below: