What does 'leverage ratio' refer to in banking?

The leverage ratio in banking specifically refers to the ratio of a bank's capital to its total assets. This ratio is crucial because it assesses a bank's ability to handle its financial obligations and absorb losses. A higher leverage ratio indicates that a bank has a substantial amount of capital relative to its total assets, which generally implies a lower risk for creditors and investors. It assesses the fundamental strength of the bank's financial structure, helping regulators determine whether a bank has an adequate capital cushion in times of economic stress.

The other options do not reflect the concept of leverage ratio accurately. The ratio of loans to deposits focuses on liquidity and the bank's ability to fund its lending operations. The ratio of expenses to income is a measure of operational efficiency. Lastly, the ratio of short-term to long-term debt evaluates the organization’s debt structure, but does not pertain directly to the leverage ratio as defined in banking.