The Downside to a Bank Having a High Leverage Ratio

question 39

True/False

The downside to a bank having a high leverage ratio is that a decline in asset value magnifies losses.

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Definitions:

Credit-Reporting Agencies

Organizations that collect, maintain, and provide information about the credit history of individuals and businesses to potential creditors.

Debtors

Individuals or entities that owe money to others.

Contract Voided

Refers to a contract that has been declared invalid and is therefore unenforceable, as if it had never been made.

Loan Agreement

A contract between a borrower and lender outlining the terms of a loan, including repayment schedule, interest rates, and the obligations of both parties.