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What role does capital play for a depository financial institution? Explain

What role does capital play for a depository financial institution? Explain

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Expert Solution

Depository institutions like commercial banks help with loans and savings and take money from the lenders and give it to the borrowers. This is an important process because -

  • They provide liquidity and a safe place to keep the amount
  • They lend out to necessary businesses
  • They provide a payment system of cashless transactions

This capital comes in handy during the time of liquidity crisis. If the public senses a poor economic situation ahead they might want to withdraw their money. Hence capital is quite important for such institutions.

jeff jeffy answered 1 year ago
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