Tier 1 capital divided by total exposure without risk weighting. It is a backstop that does not depend on risk models.
Where you will meet it
Leverage ratio comes up in 7 learning outcome notes across the FRM syllabus.
A few of them:
Banks FRM Part I · Financial markets and products
“It also added a leverage ratio of at least 3%, defined as Tier 1 over total exposure with no risk weights.”
The Governance of Risk Management FRM Part I · Foundations of risk management
“Basel III raised the quality and quantity of capital and added a leverage ratio, the liquidity coverage ratio and the net stable funding ratio.”
The Failure Mechanics of Dealer Banks FRM Part II · Liquidity and treasury risk measurement and management
“On capital, there are risk-based minimums, a non-risk-weighted leverage ratio, surcharges for global systemically important banks and loss-absorbing capacity for resolution.”
Solvency, Liquidity, and Other Regulation After the Global Financial Crisis FRM Part II · Operational risk and resilience
“The leverage ratio counts on-balance-sheet assets and off-balance-sheet items in total exposure without risk weighting.”
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