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Market Guides > Real leverage

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Published: 8th October 2009 by William Webster

In the esoteric world of financial markets why is leverage so important? Because for banks it's the very thing that can increase the magnitude of profits. That's very attractive if your remuneration is linked to these profits. But excessive leverage increases the probability of bankruptcy. The cost of which is not borne by those who benefit in the good times. Few would dispute this is a conflict of interest. The problem is that restricting leverage is notoriously difficult. There is a world of difference between reported leverage and real leverage. Let's see why.

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Document Summary

Real and reported leverage. How dealers leverage. Capital ratios. Leverage & Derivatives, structured credit & off balance sheet financing. Leverage ratios.

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