A higher leverage ratio means that the bank is using more borrowed money to fund its operations, and therefore, has a higher level of financial risk.

It matters because the higher the leverage ratio, the more vulnerable the bank is to potential losses, which can lead to financial instability, particularly during times of economic downturns or financial crisis. If a bank's assets decline in value, the bank may be unable to repay its debt, potentially leading to insolvency and requiring a government bailout to protect depositors and prevent wider financial contagion.

For this reason, regulators monitor banks' leverage ratios and limit the amount of leverage they can use to reduce the risk to financial stability.