Question

A bank has (in millions): $300 reserves, $700 loans, $500 securities, $1200 deposits, $100 debt, and $300 capital. how much is the bank's leverage ratio?

a. 5
b. 0.25
c. 30
d. 0.2

Answer 1

The bank's leverage ratio is 3.75.

Step-by-step explanation:

The leverage ratio measures the extent to which a bank relies on debt to finance its assets. It is calculated by dividing the bank's total assets by its total equity. In this case, the bank's total assets include reserves, loans, and securities, which total $1500 million. The bank's total equity is the sum of its debt and capital, which amounts to $400 million.

Therefore, the leverage ratio is calculated as $1500 million / $400 million = 3.75.

From the given options, the correct leverage ratio is not listed, so none of the given options (a, b, c, or d) is the correct answer.