Higher bank capital leads to stronger bank incentives to choose all correct answers:

Question

Quizplus · Accepted Answer

Higher bank capital provides a buffer against potential losses, giving banks greater confidence to screen borrowers carefully, monitor repayment behavior, and avoid excessive risk. This increased caution can lead to higher quality loans and less default risk. Higher bank capital also makes it less likely that a bank will fail, which can enhance its reputation and help it report higher income. The use of innovative covenants in loan contracts may or may not be influenced by bank capital, but it can help reduce the risk of loan defaults if properly structured.

Higher Bank Capital Leads to Stronger Bank Incentives to Choose