7-50 A lower level of equity capital increases the risk of insolvency to a financial institution.

Question

Quizplus · Accepted Answer

Equity capital represents the amount that a financial institution has invested in its own business, and it acts as a cushion against potential losses. A lower level of equity capital means that the institution has less protection against losses, making it more vulnerable to insolvency. Therefore, a lower level of equity capital increases the risk of insolvency to a financial institution.

7-50 a Lower Level of Equity Capital Increases the Risk