<p>Leverage ratios are typical simple ratios of debt to equity while capital adequacy ratios are usually risk weighted. </p>

<blockquote>
  <p>The capital adequacy ratio, or CAR, is a metric applied specifically
  to banks, while a common leverage ratio is used by investors to
  evaluate virtually any type of firm they choose to examine. The CAR is
  used to assess the financial risk a bank is exposed to through its
  existing loans. The ratio is risk-weighted and expressed as a
  percentage of the total exposure. ...</p>
  
  <p>Not simply a single leverage ratio, but rather several financial
  leverage metrics may be utilized to gauge a business's financial
  health. Two of the most commonly considered leverage ratios are the
  debt-to-equity ratio and the long-term debt-to-capitalization ratio.</p>
</blockquote>

<p><em>What is the difference between the capital adequacy ratio and the leverage ratio?</em></p>

<p><a href="http://www.investopedia.com/ask/answers/040915/what-difference-between-capital-adequacy-ratio-and-leverage-ratio.asp" rel="nofollow">Source: Investopedia</a> </p>

CC BY-SA 3.0
2016-01-27T15:09:17.387Z
2016-01-27T15:09:17.387Z
BKay
<p>There are several definitions of Leverage Ratio in context of Banking Sector but it seems like it is no different from CRAR (Capital Adequacy Ratio), could someone explain what's the real difference between both concepts.</p>

<banking><financial-economics>
What does Leverage ratio mean in context of Banking sector and how is it different from CRAR?
Sirius
# What does Leverage ratio mean in context of Banking sector and how is it different from CRAR?

(Asked by: username_0 on 2016-01-26)

There are several definitions of Leverage Ratio in context of Banking Sector but it seems like it is no different from CRAR (Capital Adequacy Ratio), could someone explain what's the real difference between both concepts.

**Tags:** banking, financial-economics

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## 1 answers

### Answer by username_1 on 2016-01-27. Score: 1

Leverage ratios are typical simple ratios of debt to equity while capital adequacy ratios are usually risk weighted.

> The capital adequacy ratio, or CAR, is a metric applied specifically
> to banks, while a common leverage ratio is used by investors to
> evaluate virtually any type of firm they choose to examine. The CAR is
> used to assess the financial risk a bank is exposed to through its
> existing loans. The ratio is risk-weighted and expressed as a
> percentage of the total exposure. ...
>
> Not simply a single leverage ratio, but rather several financial
> leverage metrics may be utilized to gauge a business's financial
> health. Two of the most commonly considered leverage ratios are the
> debt-to-equity ratio and the long-term debt-to-capitalization ratio.

*What is the difference between the capital adequacy ratio and the leverage ratio?*

[Source: Investopedia](http://www.investopedia.com/ask/answers/040915/what-difference-between-capital-adequacy-ratio-and-leverage-ratio.asp)


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