A bank operates with reserves of $100, loans of $300 and securities of $100 . The bank's only liability is deposits of $400 since it has zero debt. Calculate the bank's leverage ratio
Since Assets - Liabilities equals Bank Capital, we know bank capital is $100 . Leverage is the ratio of assets to capital which, in this example, is $500/$100 = 5.
The bank leverage in this example is 5.
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