How do I calculate the supplementary leverage ratio (SLR)?

Divide the bank's Tier 1 capital by its total leverage exposure. Total leverage exposure includes all on-balance-sheet assets plus off-balance-sheet items like derivatives, loan commitments, and securities financing transactions. Only the largest U.S. banks are required to calculate and report the SLR.

The formula is:

Supplementary Leverage Ratio = Tier 1 Capital / Total Leverage Exposure

The result is expressed as a percentage. The numerator is the same Tier 1 capital used in other regulatory capital ratios. What makes the SLR distinct is the denominator: total leverage exposure.

What Goes Into Total Leverage Exposure

Total leverage exposure starts with average total on-balance-sheet assets, the same base used in the standard Tier 1 leverage ratio, and then adds several categories of off-balance-sheet exposures:

Unfunded loan commitments: the undrawn portions of revolving credit facilities, construction loans, and other credit lines, converted using credit conversion factors

Standby letters of credit and financial guarantees

Derivatives exposures: calculated using methodologies that capture both current exposure (what the bank would lose today if a counterparty defaulted) and potential future exposure (how much the position could move against the bank before it could be closed out)

Securities financing transactions: repos, reverse repos, and securities lending arrangements, subject to netting rules that allow offsetting of matched positions with the same counterparty

Other off-balance-sheet items not captured above, each converted at specified credit conversion factors

These additions make total leverage exposure substantially larger than total assets. For the biggest U.S. banks, off-balance-sheet exposures can add 15% to 30% on top of on-balance-sheet assets, depending on the size of the bank's derivatives book and lending commitments.

Walking Through the Calculation

1. Start with Tier 1 capital. This is the same figure reported in a bank's other capital ratios and includes Common Equity Tier 1 (CET1) capital plus Additional Tier 1 (AT1) capital, after regulatory deductions.

2. Calculate total leverage exposure by taking average total on-balance-sheet assets and adding the off-balance-sheet categories listed above. Each category has specific measurement and conversion rules defined by regulation.

3. Divide Tier 1 capital by total leverage exposure.

Worked example: A G-SIB reports Tier 1 capital of $180 billion. Its on-balance-sheet assets average $2.7 trillion, and off-balance-sheet exposures add another $500 billion, bringing total leverage exposure to $3.2 trillion.

SLR = $180 billion / $3.2 trillion = 5.6%

That 5.6% exceeds the 5.0% eSLR minimum for G-SIB holding companies, giving this bank a 60-basis-point buffer above the enhanced requirement.

Why the SLR Exists

The standard Tier 1 leverage ratio uses total assets in its denominator, which means it ignores off-balance-sheet risk entirely. For most banks, that's acceptable because their off-balance-sheet exposures are modest relative to their balance sheets.

The largest banks are different. They often carry enormous derivatives portfolios, hundreds of billions in unfunded lending commitments, and extensive securities financing operations. These positions create real economic exposure without appearing as on-balance-sheet assets. The SLR was introduced as part of post-crisis Basel III reforms to ensure these exposures are captured in at least one capital measure.

Without the SLR, a bank could theoretically shift risk into off-balance-sheet structures to improve its standard leverage ratio while maintaining the same underlying economic exposure. The SLR closes that gap.

Which Banks Must Comply

The SLR applies to banking organizations with more than $250 billion in total consolidated assets or more than $10 billion in on-balance-sheet foreign exposure. In practice, this limits the requirement to the eight U.S. Global Systemically Important Banks (G-SIBs) and a handful of other large banking organizations. Community banks and most regional banks do not calculate or report the SLR.

Minimum Requirements

The regulatory thresholds follow a tiered structure:

All covered bank holding companies must maintain at least a 3.0% SLR

G-SIB holding companies face an enhanced supplementary leverage ratio (eSLR) buffer of 2.0%, bringing their effective minimum to 5.0%

Insured depository subsidiaries of G-SIBs must maintain at least 6.0% to be classified as well-capitalized under prompt corrective action standards

A G-SIB holding company that falls between 3.0% and 5.0% faces restrictions on capital distributions (dividends and share buybacks) and discretionary bonus payments, with the severity increasing as the ratio drops closer to 3.0%. Falling below 3.0% triggers more direct regulatory intervention.

When the SLR Becomes the Binding Constraint

For most banks subject to SLR requirements, the risk-based capital ratios (CET1, Tier 1, Total Capital) set the effective capital floor. But for banks with large, low-risk-weight balance sheets or significant off-balance-sheet positions, the SLR can become the tighter constraint.

This happens most often when a bank holds large amounts of cash reserves at the Federal Reserve or U.S. Treasury securities. These assets carry 0% risk weights and barely affect risk-based capital ratios, but they count at full value in total leverage exposure. A bank that accumulates excess reserves may find its CET1 and Tier 1 ratios comfortably above minimums while its SLR tightens.

This dynamic influences how large banks allocate balance sheet capacity across business lines. When the SLR is binding, adding any asset to the balance sheet consumes capital regardless of its risk profile, which can make low-margin, low-risk activities like Treasury holdings or repo lending less attractive from a capital efficiency standpoint.

Common Misunderstandings

Confusing the SLR with the standard Tier 1 leverage ratio is the most frequent error. Both use Tier 1 capital in the numerator, but the denominators differ: total assets for the standard ratio, total leverage exposure for the SLR. Because the SLR denominator is always larger, the SLR will always produce a lower percentage than the standard leverage ratio for the same bank.

A second misconception is that outside investors can independently calculate a bank's SLR from public financial statements. The off-balance-sheet components, particularly derivatives exposures, require granular data on notional amounts, netting agreements, and collateral arrangements that is not fully disclosed in 10-Q or 10-K filings. Banks report the SLR as a completed ratio in their regulatory disclosures.

Some investors also assume that a higher SLR is always better. While a very low SLR signals thin capital coverage, an unusually high SLR at a G-SIB may indicate the bank is holding more capital than regulators require, which can weigh on return on equity. The ratio reflects a tension between safety and efficient capital deployment.

Where to Find Reported SLR Data

Large banks report the SLR and total leverage exposure in quarterly earnings releases, usually in a capital ratios table alongside risk-based capital ratios. The same data appears in FR Y-9C regulatory filings submitted to the Federal Reserve. For G-SIBs specifically, the Federal Reserve publishes SLR figures as part of stress test results and annual capital plan reviews.