In general, banks would prefer to maintain a high amount of capital to boost their return on equity ratio, yet regulators have argued that banks need only a sufficient amount of capital to absorb potential operating losses.

Question

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Banks are required to maintain a sufficient amount of capital to absorb potential operating losses, and regulators discourage excessive risk-taking through capital requirements. Higher capital ratios can lead to lower returns on equity (ROE) for banks, but it is important for financial stability and to protect depositors and creditors in case of unexpected losses.

In General, Banks Would Prefer to Maintain a High Amount