Don't Believe European Bank Capital Ratios

As readers know, I have been skeptical of the way that eurozone bank capital ratios are calculated. This is because: (1) risk-weighted assets are small relative to book assets, which is dubious; (2) substantial amounts of bond portfolios are not marked to market; and (3) eurozone government bonds are assigned a low risk-weight.

In other words, eurozone regulatory capital ratios lack useful information content for uninsured depositors and other “investors”. This leads me to look at capital ratios which I can calculate myself using public data. One of these ratios is the classic leverage ratio: common equity to book assets, artifacts of financial accounting. I would prefer to use tangible common equity as the numerator, but I will settle, for today’s purposes, for just common equity.

I have made a list of the major banks of the major countries, and went onto their websites to get the most recent published balance sheet data. This took more effort than it should have. Not all IR websites are equally useful. I don’t want to point fingers but for some, the most recent balance sheet was elusive; for others it was offered but wouldn’t load (Mitsubishi and MPS, for example). Not to point fingers, but I distrust banks that seek to hide their financial data.

I have, using my hand-held calculator, compiled a schedule of the book leverage ratios of a few of the world’s major banks. Below is my schedule of leverage ratios, from lowest to highest, as I calculated them using what I could find on their websites. Most of the data is 12/31, the rest is 9/30.