The empirical evidence indicates that large banks create more liquidity when they have :
A)great managers
B)higher leverage
C)more capital

Question

Quizplus · Accepted Answer

Empirical studies have shown that higher capital levels of banks play a significant role in increasing liquidity in the financial system. Banks with more capital can better absorb unexpected losses during a crisis, which reduces the likelihood of a liquidity crisis. Additionally, having more capital provides banks with an increased ability to lend during periods of stress, which improves overall liquidity in the financial system. Higher leverage, on the other hand, can increase risks and decrease liquidity, while having great managers may help with efficiency but does not necessarily directly impact liquidity creation.

The Empirical Evidence Indicates That Large Banks Create More Liquidity