However, proponents of the leverage ratio may argue that its obvious definition would simply be the bank’s accounting equity divided by its total assets. Yet a leverage ratio defined in such a simple way has two major drawbacks: it is neither comparable nor comprehensive. Why isn’t it comparable? Banks use different accounting standards.
For example, it is well known that the netting rules for derivatives under IFRS are much more restrictive than under US GAAP putting banks reporting under IFRS at a comparative disadvantage.