Risk-based capital supports risk-based deposit insurance premiums by increasing the cost risk taking for DI stockholders.

Question

Quizplus · Accepted Answer

Risk-based capital requires DI stockholders to hold higher capital levels for riskier assets, which in turn increases the cost of risk-taking. This supports risk-based deposit insurance premiums that charge higher premiums for DI's with higher levels of risk.

Risk-Based Capital Supports Risk-Based Deposit Insurance Premiums by Increasing the Cost