For a given return on assets,the lower is bank capital
A)the lower is the return for the owners of the bank.
B)the higher is the return for the owners of the bank.
C)the lower is the credit risk for the owners of the bank.
D)the lower the possibility of bank failure.

Question

Quizplus · Accepted Answer

The return on equity (ROE) for bank owners increases when bank capital is lower, given a constant return on assets (ROA). This is because ROE is leveraged by a smaller equity base, amplifying the return derived from the bank's assets.

For a Given Return on Assets,the Lower Is Bank Capital