The leverage story banks want to hide Slowly, ever so slowly, banks are being forced to clear away the fog and mirrors that have protected their balance sheets from the prying eyes of investors and sceptics. Last month, UK banks became the first in the world to disclose their total borrowing, known as leverage ratio, on a standardised basis. They haven't done this willingly - the Bank of England insisted - and their disclosures are all surrounded by lots of hemming and hawing about how the leverage rules are still changing. The results are instructive. The UK's five biggest banks are considered among the best capitalised in Europe on the traditional measure of core tier one equity divided by risk-weighted assets, which includes everything from home mortgages and small business loans to complex derivative contracts, each multiplied by a factor intended to reflect the amount the bank could lose. The ratios range from 12.3 per cent at HSBC down to 10.3 per cent at Royal Bank of Scotland. The disclosed leverage ratios strip out the effect of risk modelling, which has the effect of more than doubling the size of every bank's balance sheet and more than tripling that of Barclays. These numbers partly reflect the size of low-risk, high volume businesses. But they will be a boon to critics who think some banks have been tweaking their models to cut their capital requirements. The reported leverage ratio also uses the tighter definitions of capital that will be required in 2018 under the Basel III reform package, despite hopes by some banks that they will be allowed to boost their ratios by counting some old capital that doesn't quite fit the new definitions. This unvarnished look at each bank's borrowing produces far different results. As of December 31, Standard Chartered had the strongest ratio at 4.5 per cent, meaning that it has assets equal to 22 times its capital. Barclays has the weakest, with 2.8 per cent. That means Barclays had assets worth more than 35 times its capital base. All the banks except Barclays were able to crawl above the 3 per cent leverage ratio that will eventually be required under the Basel III rules. But both of the taxpayer-supported institutions, Lloyds Banking Group and RBS, barely made it, reporting identical ratios of 3.1 per cent. That figure goes a long way towards explaining why the UK government has resisted calls for a tougher 4 per cent leverage ratio from parliament's Commission on Banking Standards. None of these numbers take into account the announcement last month from the Financial Policy Committee that UK banks were overstating their capital to the tune of £50bn, which would clearly drive down the leverage ratios even further. There aren't comparable figures on banks elsewhere. While some banks make some kind of leverage ratio public, none are forced to use the tougher Basel 2018 definitions. Most analysts think European banks in particular will also struggle to meet the 3 per cent minimum Basel III standard, and US banks may have a harder time hitting it than some expect because of the way derivatives are counted under the Basel rules. Bank lobbyists are already turning their focus on watering down the Basel III leverage rules before they can ever take effect. The global rulemaking committee is spending this year "finalising" and banks are lining up to argue for amendments that would effectively reduce the denominator. Some are inherently appealing - exempt trade finance because it is short-term, low risk and critical to world trade - but could create loopholes ripe for exploitation. Others, such as rules for when derivatives with the same counterparty can be netted off each other are devilishly technical and have the same loophole issue. The question is how much we should care. If banks have strong tier one capital ratios, does it really matter that their leverage ratios are not nearly as high? Bankers argue that the leverage ratio is a crude tool that penalises basic low-risk products such as prime home mortgages and that jacking it up too high will stunt economic growth by making it hard to ramp up lending. Some regulators disagree. Andy Haldane of the Bank of England has put together a persuasive set of tables showing that leverage has been a better predictor of bank survival than capital. Another way to think about it is that a bank with a leverage ratio of 3 per cent that sees its assets unexpectedly drop by 3 per cent will be completely bust. Who wants to bet that a bank won't make that mistake again? Brooke Masters is the Financial Times" chief regulation correspondent