Definition of leverage ratio

This describes the amount of equity in comparison to debt or the amount of earnings in comparison to debt. [1]

You can think of it like a gear box. Leverage in banking is the ratio of lending to equity - just like the larger the gear the more oomph it has. [2]

The trouble was that in the run-up to the global financial crisis a lot of banks did more and more lending without raising any extra equity. They were able to "game" the system, as the Basel Committee says, either by using off-balance-sheet vehicles or through other ruses. In future, there will be global limits on banks' leverage. [3]

Q & A: Global body lays down the rules over governance

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