Explanation

The false statement is D. Is risk-based.

Analysis of Each Statement:

A. Acts as a supplementary measure to risk-based capital standards. - TRUE

• The leverage ratio is indeed designed as a backstop to risk-based capital requirements, providing a simple, non-risk-based measure to complement the more complex risk-weighted capital framework.

B. Is defined as Tier 1 capital to on-and-off-balance sheet items and exposures. - TRUE

• The Basel III leverage ratio is calculated as Tier 1 capital divided by the total exposure measure, which includes both on-balance sheet exposures and certain off-balance sheet items.

C. Allows banks to lend approximately 33 times their capital. - TRUE

• With a minimum leverage ratio requirement of 3%, this implies that banks can have total exposures up to approximately 33.3 times their Tier 1 capital (since 1/0.03 ≈ 33.3).

D. Is risk-based. - FALSE

• This is the key distinction of the leverage ratio. Unlike risk-based capital ratios that assign different weights to assets based on their riskiness, the leverage ratio treats all exposures equally regardless of their risk profile. It is specifically designed to be non-risk-based to prevent banks from taking excessive leverage through low-risk-weighted assets.

The leverage ratio's purpose is to provide a simple, transparent measure that cannot be gamed through risk-weight optimization, making it an effective complement to risk-based capital requirements.