The essential characteristic of capital (under the CAR)is that payments to depositors take priority over payments to the suppliers of capital.

Question

Quizplus · Accepted Answer

According to the Capital Adequacy Ratio (CAR), the capital held by banks is classified into two categories - Tier 1 and Tier 2 capital. Tier 1 capital mainly represents shareholders' equity and retained earnings, while Tier 2 capital represents subordinated debt and other forms of reserves. The essential characteristic of Tier 1 capital is that it has the highest quality and payments to depositors take priority over payments to the suppliers of capital. Therefore, the given statement is true.

The Essential Characteristic of Capital (Under the CAR)is That Payments