One suggested method of reducing excessive risk-taking by SIFIs is to require them to hold ________ capital when credit is expanding rapidly and ________ capital when credit is contracting.
A)less;more
B)more;no
C)more;less
D)less;no

Question

Quizplus · Accepted Answer

Requiring SIFIs to hold more capital when credit is expanding rapidly can help to prevent them from taking excessive risks and contributing to the creation of asset bubbles. Similarly, requiring them to hold less capital when credit is contracting can enable them to continue lending and prevent credit crunches from becoming more severe. This approach is known as countercyclical capital requirements and is designed to help stabilize the financial system and mitigate the impact of economic cycles on financial markets.

One Suggested Method of Reducing Excessive Risk-Taking by SIFIs Is