Which of the following statement about capital is accurate? A. Unless regulated, banks are likely to...

Which of the following statement about capital is accurate? A. Unless regulated, banks are likely to hold too much capital (equity). B. Unless regulated, banks are likely to hold too little capital (equity). C. An increase in a bank's capital (equity) increases its ROE (return on equity). D. B and C.

Solutions

Expert Solution

Banks are generally needed to hold a higher amount of capital because they need to protect themselves against any kind of adverse economic scenario.

Hence unless regulated, banks are likely to hold Too little capital.

when there will be increase in the capital of the banks and equity of the bank, it will be decreasing the overall return on equity because of higher concentration of equity capital.

Correct answer will be option ( B) unless regulated, banks are likely to hold Too little capital

jeff jeffy answered 1 year ago

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