Under Basel III, the leverage ratio is calculated as Tier 1 Capital divided by the exposure measure. The exposure measure includes total assets, off-balance-sheet items, and derivative exposures.

First, calculate the exposure measure:
Exposure Measure = Total Assets + On-balance-sheet Derivative Exposures + Off-balance-sheet Derivative Exposures + Repurchase Agreement Exposures
Exposure Measure = $2,000 + $100 + $150 + $200 = $2,450 million

Next, calculate the leverage ratio:
Leverage Ratio = (Tier 1 Capital / Exposure Measure) × 100
Leverage Ratio = ($250 / $2,450) × 100
Leverage Ratio = 0.10204 × 100
Leverage Ratio = 10.204% ≈ 10.20% (rounded to two decimal places)

Things to Remember

• The leverage ratio is a key regulatory requirement under Basel III to ensure that banks maintain an adequate level of capital to support their activities.
• Tier 1 Capital is considered the highest quality capital and includes common equity tier 1 (CET1) capital and additional tier 1 capital instruments.
• Tier 2 Capital includes items such as subordinated debt, hybrid instruments, and other capital instruments that provide additional loss-absorbing capacity.
• Total Assets represent the sum of all assets on the bank's balance sheet, including both on-balance-sheet and off-balance-sheet items.
• Derivative exposures, both on-balance-sheet and off-balance-sheet, are included in the exposure measure calculation to capture the potential risks associated with these financial instruments.
• Repurchase agreement exposures are also considered in the exposure measure.