SLR

A regulatory capital ratio measuring a bank's tier 1 capital against its total leverage exposure, including off-balance-sheet assets.

The Supplementary Leverage Ratio (SLR) is a regulatory capital standard established under Basel III guidelines for large, systemically important financial institutions. It measures a bank's core capital against its total leverage exposure. Unlike risk-weighted capital ratios, which assign lower capital requirements to assets deemed safe, the SLR treats all assets equally regardless of their perceived risk. To calculate the SLR, a bank's Tier 1 capital is divided by its total leverage exposure, which includes both on-balance-sheet assets (such as loans, cash, and investment securities) and off-balance-sheet exposures (such as derivatives, repo transactions, and unused credit lines). This comprehensive denominator prevents banks from using complex financial engineering or risk-weighting models to artificially lower their capital requirements. For retail investors, the SLR is a vital health metric for major banking stocks. A higher SLR indicates a safer, more stable institution with a robust capital cushion to absorb unexpected losses. If a bank's SLR falls too close to the regulatory minimum (typically 5% for global systemically important banks in the U.S.), the bank may be forced to restrict share buybacks, limit dividend increases, or shrink its balance sheet to comply, which can negatively impact the stock price.

A large bank has Tier 1 capital of $250 billion. Its total balance sheet assets equal $3.8 trillion, and it holds another $1.2 trillion in off-balance-sheet derivative exposures and credit commitments, making its total leverage exposure $5.0 trillion. Its SLR is calculated as: $250 billion / $5.0 trillion = 5.0%.