During a time of rising asset values,a bank can increase its returns by engaging in regulatory capital arbitrage.

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Regulatory capital arbitrage refers to the practice of banks taking advantage of loopholes in regulatory capital rules to inflate their capital positions and improve their returns. During a time of rising asset values, banks can increase their returns by engaging in regulatory capital arbitrage, as the value of their assets increases and their perceived risk declines, allowing them to hold lower levels of regulatory capital while still meeting regulatory requirements.

During a Time of Rising Asset Values,a Bank Can Increase