A leverage ratio is the ratio of a measure of a bank’s capital resources to a gross measure of its exposures or assets.
Capital resources
The FPC believes that capital used to meet the leverage ratio and buffers should be sufficiently loss absorbing while a bank is a going concern.
The highest quality going-concern regulatory capital is Common Equity Tier 1 (CET1), which largely consists of common shares and retained earnings. Other types of capital instruments, known as ‘Additional Tier 1’ (AT1) instruments, can also constitute going-concern regulatory capital. AT1 instruments absorb losses through conversion to equity or by being written down when a bank’s capital ratio falls below a certain level [The coupons on AT1 instruments must also be fully discretionary.]. This allows AT1 instruments to increase going-concern resilience provided the trigger for conversion or write-down is set appropriately high.
The FPC believes that banks should use the highest quality of capital, CE
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