There are many ways to measure the robustness of a bank’s balance sheet. One is The Banker’s capital-to-asset ratio (CAR), which is similar to Basel’s leverage ratio but excludes off-balance-sheet items. The global aggregate CAR rose 16 basis points in the 2018 rankings, which shows that banks grew capital faster than assets, and that the industry de-levered, throughout 2017.
However, analysing the industry’s risk-weighted assets (RWAs) paints a slightly different picture. The Top 1000’s combined RWAs amount to $59.9bn, up 17.7% from 12 months earlier. It is a sharp reversal from the past few years, when RWAs hovered around the $54bn mark before dipping to $50.9bn in 2017’s rankings. More importantly, RWA density – being RWAs divided by total assets – has jumped nearly four percentage points to 48.43%. Despite policy-makers’ efforts to de-risk the industry, asset portfolios contain more risk today than four years ago when the RWA density was 48.16%.
