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Leverage ratio

A simple backstop that compares a bank's capital to its total exposures, without risk weighting.

The leverage ratio divides Tier 1 capital by total exposure, including many off balance sheet items, and deliberately ignores risk weights. It is a guardrail against banks building very large balance sheets on thin capital.

It works alongside the risk based ratios so that a bank cannot look well capitalised on risk weighted measures while being highly leveraged in absolute terms.

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