Question

If a bank has a leverage (assets/equity) of 10 and a return on asset of 2%, what is its return on equity

Answer 1

If a bank lends $10 for every $1 of capital reserves it will have a capital leverage ratio of 1/10 = 10% Globally it is required that this ratio is at least 3%, according to the Basel III Basel III Basel III is a regulatory framework designed to strengthen bank capital requirements while also mitigating risk.

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