Why does the Federal Reserve impose capital requirements on commercial banks?

Expert Solution

The Federal Reserve impose capital requirements on commercial banks in order to ensure that the commercial banks have enough amount of capital to sustain operating losses without affecting honouring of withdrawals. Federal Reserve also ensure that the risky investments does not dominate the holdings of commercial banks by imposing capital requirements on them. With some capital requirements, the commercial banks are able to meet liabilities in case of immediate and uncertain withdrawals.

Rahul Sunny answered 2 years ago

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Describe the functions performed by Federal Reserve Banks?

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