Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. for a number of reasons (bank collapses can cause

For a number of reasons (bank collapses can cause economic downturns, the government is on...

70.2K

Verified Solution

Question

Accounting

For a number of reasons (bank collapses can cause economic downturns, the government is on the hook for deposit insurance) the government has taken an interest in trying to reduce bank failures.

One way to do this is to regulate the specific activities of banks in terms of risky activities; another way is to increase capital requirements. The idea of requiring a bank to have a lot of equity capital is that a bank failure would be less likely for two reasons -- first, a lot of equity capital means a lot of losses can be sustained before insolvency, and second that if a bank has a lot of equity capital it knows it will bear the costs of any losses (rather than passing them on to a government insurance fund) and will therefore have more incentive to be safe.

Banks generally don't like these requirements -- in general having a large equity pool can reduce your return on equity.

What do you think? Should there be high capital requirements? Should they substitute for some other regulations?

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

com Student PlayerHomework aspx homew SP1 2023 nt 5 Hypothesis Testing One You are the...

Statistics
Q

Describe the principles behind and the applications of the following: a) Reverse transcriptase-PCR b) Cloning DNA into...

Biology
Q

Double your wealth. Kant Miss Company is promising its investors that it will double their money...

Finance
Q

Solve the differential equation y'' ? y' ? 2y = 9e^2t , with initial conditions y(0)...

Advance Math
Q

General Question- Can someone recommend supply Chain strategies or Methodology for Process improvement for luxury Brand- Hermes?? Please...

General Management
Q

Find the standard deviation for the random variable X 5 3 7 9 14 P...

Statistics
Q

Find the formula for a function of the form w x points between these two...

Calculus
Q

Verify the identity tan 0 cot 0 sec 0 csc 0 Use a Reciprocal Identity...

Algebra
Q

Teal Corporation purchased 360 shares of Sherman Inc. common stock for $11,800 (Teal does not...

Accounting
Q

Golden Corp., a merchandiser, recently completed its 2017 operations. For the year,(1) all sales are...

Accounting
Q

The official tax report issued by a broker or custodian on the sale of a...

Finance
Q

E16-23 (similar to) Question Help Indiana Soy Products (OSP) buys soybeans and processes them into...

Accounting