Tuesday, February 9, 2016
The Tier 1 common Capital Ratio uses in the denominator risk weighted assets, calculated with risk weights not assigned by me… the safer an assets is perceived to be or is deemed to be the lower its value.
The Leverage Ratio uses in the denominator the gross value (of most) assets.
Since I have always felt much more nervous about the assets a bank perceives as very safe compared to the assets it perceives as risky, I give much more importance to the Leverage Ratio, than to the Tier 1 Common Capital Ratio.
But the regulators would not allow me the data on the Leverage Ratio, because, in their opinion, that would not reveal the real leverage to me… it would only confuse me.
And so they decided to credit-risk weigh the assets, and came up with the Tier 1 Common Capital Ratio.
And that made many in the market feel very much more comfortable with that the banks were quite adequately capitalized.
But one has to adapt, and so I felt that there was a new very interesting Ratio to be found in the market whenever the Leverage Ratio was published. And that was the Tier 1 Common Capital Ratio to the Leverage Ratio Ratio, because that Ratio would represent the Hiding Risks Ratio.
Deutsche Bank reported at the end of 2015 Tier 1 Common Capital Ratio of 11.5% and a Leverage Ratio of 3.6%, and that would signify a 319 percent Hiding Risks Ratio. I am not sure it is the highest… but it is sure high enough to make me very nervous.