A capital adequacy ratio uses RWA as its denominator, whereas no risk weights apply to the denominator of this ratio. Consider a hypothetical example in which Tier 1 capital is 3 trillion yen and the exposure measure is 100 trillion yen. The leverage ratio is 3%, the same as the minimum. If the exposure measure rises to 120 trillion yen, it falls to 2.5%, below the minimum.

In Japan, it applies to banks under the international standard, and was introduced as a disclosure requirement (Pillar 3) in 2015 and as a minimum capital requirement (Pillar 1) in 2019. Since April 2024, deposits with the Bank of Japan are excluded from the exposure measure, in exchange for a higher minimum of 3.15%1. The BCBS's final document of December 2017 provides that the exposure of derivatives is measured with a modified SA-CCR2.

The ratio was introduced to curb the buildup of leverage in the banking system. It is a simple measure that uses no risk weights, and it complements the risk-based capital adequacy ratio1.

Notes

  1. Financial Services Agency, "バーゼル規制の概要" (Overview of the Basel framework, our translation) (August 2026), page 6, "レバレッジ比率" (Leverage ratio) (in Japanese). ↩ ↩2

  2. Financial Services Agency and Bank of Japan, "「レバレッジ比率の枠組みの見直し」の概要" (Overview of "Revisions to the leverage ratio framework", our translation) (February 2018), page 4 (the 3% minimum for all banks) and page 5 (calculating derivative exposures with a modified SA-CCR in the 2017 final document) (in Japanese). ↩