Balance Sheet of Pry Bank

Balance Sheet of Crow Bank

Which bank has a higher leverage ratio?

Crow Bank

Pry Bank

$100\%vv,$ and Crow Bank's capital increases by

$.$ Therefore, if the value of assets is rising and liabilities do not change, a higher

leverage ratio results in a

percentage increase in capital.

Now suppose all the items in the balance sheets of both banks return to their initial values. Suddenly, banks realize that loans they made are riskier

than they thought, and the total value of their assets declines by $10\%$ to $$180,000.$ Again, assume that the liabilities of both banks remain the same.

Pry Bank's capital decreases by $,$ and Crow Bank's capital decreases by

$.$ Therefore, if the value of assets is falling, a higher leverage

ratio means a

percentage decrease in capital.