Which of the following is an indicator of increasing capital risk in a bank?
A)Rise in the market yields on debt issued by a bank and market yields on government securities of similar maturities
B)Fall in the ratio of stock price per share to earnings per share
C)Decline in the ratio of equity capital to total assets
D)Increase in purchased funds as a percentage of total liabilities
E)All of the options are correct.

Question

Quizplus · Accepted Answer

All the options listed are indicators of increasing capital risk in a bank. A rise in market yields on a bank's debt compared to government securities suggests investors see the bank as riskier. A fall in the price-to-earnings ratio can indicate reduced investor confidence. A decline in the equity-to-assets ratio shows a higher reliance on debt, increasing financial leverage and risk. Lastly, an increase in purchased funds as a percentage of total liabilities indicates a higher reliance on potentially volatile funding sources.

Which of the Following Is an Indicator of Increasing Capital