6-62 Compared to commercial banks,finance companies usually signal solvency and safety concerns by

Question

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Finance companies usually hold higher capital-asset ratios compared to commercial banks to signal their solvency and safety concerns. This is because finance companies rely heavily on borrowed funds rather than deposits, making their liability structure riskier. Holding higher capital-asset ratios helps to mitigate this risk and assure investors of their solvency.

6-62 Compared to Commercial Banks,finance Companies Usually Signal Solvency and Safety