explain double leverage

CFA General
#1

can somebody explain better to me the concept of double leverage

i have read investopedia definition: http://www.investopedia.com/terms/d/double_leverage.asp

however perhaps somebody on this forum could explain better, also I’m guessing this can lower your solvency ratio (as more capital in denominator)?

thanks!

#2

bank have to comply with basel 2 or basel 3 norms as the case may be which restricts the amount of debt they can have in their capital structure…so the bank forms another company who acquires an equity stake in the bank and issues debt in the market to finance that equity stake. using this mechanism banks gains access to more debt that basel norms would allow for

#3

many thanks!