Bank capital is important since it constrains bank owners [and their agents. the bank managers) from engaging in risky lending at the depositors JFDIC expense, i.e. moral hazard. The idea being that the more the owners of the bank have contibuted to the bank's operation, the more they have to lose in the face of a liquidation. A leverage ratio is any one of several financial measurements that look at how much capital a rm holds in relation to its total assets. For our purposes we dene the bank's leverage ratio as eqwty capital divided by total assets ' Go to the St. Louis Federal Reserve FRED database. and find data on assets less liabilities. i.e. bank capital (RALACEM027SBOGL and total assets of commerCIal banksULAACBMONSBOG). Starting in January 1973 until December 2021. using the FRED graphing tool [not the Excel add-on)' calculate the bank leverage ratio and create a line graph of the leverage ratio over this sample (include the graph you created as part of your submission). Given the path of bank leverage over time' what can you conclude about moral hazard in the banking system over the time period considered? ' , Just to show how nebulous is the denition of the leverage ratio, the inverse of this ratio is also called a leverage ratio in other contexts. ECONOMIC RESEARCH Economic Research Resources v Switch Products EDIT LINE 1 ADD LINE FORMAT EDIT LINE 1 FRED. Your trusted data source Search FRED ... (a) Residual (Assets Less Liabilities), All Commercial since 1991 Banks, Billions of U.S. Dollars, Seasonally ECONOMIC DATA | ST. LOUIS FED Release Calendar FRED Tools . FRED News FRED BI Adjusted (RALACBM027SBOG) Categories > Money, Banking, & Finance > Banking > Commercial Banking > All Commercial Banks Units: Billions of U.S. Dollars Copy to all FRED Graph (b) Total Assets, All Commercial Banks, Billions of U.S. 1Y | 5Y | 10Y | Max Dollars, Seasonally Adjusted (TLAACBM027SBOG) 1973-01-01 to 2021-12-01 Units: Billions of U.S. Dollars Copy to all FRED ~- Residual (Assets Less Liabilities), All Commercial Banks/Total Assets, All Commercial Banks 0.16 Modify frequency: D.14 Monthly v D. 12 Customize data: Write a custom formula to transform one or more series or combine 0.10 two or more series. Bil. of U.S. $/Bil. of U.S. $ You can begin by adding a series to combine with your existing series. 0.08 Select... Add D.06 Now create a custom formula to combine or transform the series. Need help? [+] 0.04 Formula: a/b Apply 0.02 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Finally, you can change the units of your new series. 2000 Units: Shaded areas indicate U.S. recessions. Source: Board of Governors of the Federal Reserve System (US) fred.stlouisfed.org Share Links & Account Tools