For a given level of return on assets, a bank with a higher level of capital will have a lower
A)return on equity.
B)leverage measure.
C)noninterest income.
D)liquidity.

Question

Quizplus · Accepted Answer

The return on equity (ROE) measures how much profit a bank generates with the money invested by its shareholders. Therefore, a bank with a higher capital level will have a higher amount of capital invested by its shareholders, which will increase the denominator in the ROE formula, making the ROE lower. In other words, a higher level of capital reduces the profitability of the equity invested.

For a Given Level of Return on Assets, a Bank