“The last wrench in the toolbox”
Consolidated Supervised Entities Program
…A leverage ratio measures the amount of debt a company has compared to its total capital. A leverage ratio of 30 means that 30% of a bank’s total capital is debt. The banks could take on more debt, which was good when times were good because it allowed them to make more transactions. However, high levels of debt means it takes only a small decline in the value of the firm for the bank to go bankrupt.
If only a 30 leverage ratio meant just 30% of the bank’s capital base was debt! If this was the case, Bear Stearns and Lehman Brothers would still be in business. A leverage ratio is another name for debt-to-equity ratio, meaning that for every $1 of equity in the capital structure, there is $30 of debt - that’s more like 97%!
So that’s why even a relatively small writedown (which is charged against equity) can be so damaging to a highly levered investment bank.
Source: dihard
37 Notes/ Hide
-
limited-company liked this
-
blinds-uk liked this
-
cacaverdenebun liked this
-
nhmortgagebroker liked this
-
mamortgageexpert liked this
-
ctmortgagebroker liked this
-
flmortgagebroker liked this
-
cardetailingcharlotte liked this
-
accutane-lawsuit liked this
-
thatgirlgwen reblogged this from dihard and added:
like Dihard? I need...find out! She’s been posting several primers on
-
theopie reblogged this from dihard and added:
An excellent anaylsis,...always, by dihard
-
snarkymcgee reblogged this from dihard and added:
Economy downfall Cliffs Notes…
-
bidoun reblogged this from dihard
-
klaatu reblogged this from dihard
-
brianquinn reblogged this from dihard and added:
can outline this...plain English, however small or large
-
ericlodwick reblogged this from dihard
-
hipsterdiet reblogged this from dihard and added:
very thorough round-up, and while broad, it...few key, but subtle strokes
-
billda reblogged this from dihard and added:
case, Bear Stearns...Lehman Brothers would still be in business. A
-
dihard posted this
