The Tier 1 leverage ratio measures a bank’s core capital relative to its total assets. The ratio looks specifically at Tier 1 capital to judge how leveraged a bank is based on its assets. Tier 1 capital refers to those assets that can be easily liquidated if a bank needs capital in the event of a financial crisis. The Tier 1 leverage ratio is thus a measure of a bank’s near-term financial health.

The Tier 1 leverage ratio is frequently used by regulators to ensure the capital adequacy of banks and to place constraints on the degree to which a financial company can leverage its capital base.