Compared to commercial banks, finance companies usually signal solvency and safety concerns by

Question

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Finance companies typically hold higher levels of capital-asset ratios to signal solvency and safety concerns, as compared to commercial banks. This is because finance companies usually have lower credit ratings and higher default risk, so they need to demonstrate their ability to absorb losses in the event of unexpected loan defaults or other negative events. Holding higher capital-asset ratios provides a cushion against such risks and can help maintain investor confidence.

Compared to Commercial Banks, Finance Companies Usually Signal Solvency and Safety