Explain each action below is appropriated or not when a bank manager feels the bank is holding too much capital, and why? • Sell or retire stock • Increase dividends to reduce retained earnings • Increase asset growth via debt
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Explain each action below is appropriated or not when a bank manager feels the bank is holding too much capital, and why?
• Sell or retire stock
• Increase dividends to reduce
• Increase asset growth via debt
Step by step
Solved in 3 steps
- How the action of a bank manager below can solve holding too much capital problem?• Sell or retire stock• Increase dividends to reduce retained earnings• Increase asset growth via debtall of the following statements about a bank's capital are correct except: bank capital is the cushion a bank has against a sudden drop in the value of its assets a bank is more profitable the more capital it holds bank capital decreases as interest rate increase bank capital is what would be left after a bank's owner sold all the assets and paind off all the liabilitiesFor a bank with deficient capital ratios, which of the following actions could be required by regulators to increase the capital ratios, all else constant? A. Reallocate assets to increase the bank's holdings of cash B. Increase the bank's leverage C. Increase the bank's growth rate by making additional commercial loans. D. Increase the bank's dividend payment E. Decrease the bank's holdings of short-term Treasury securities.
- As a bank manager, you conclude that the bank has a capital shortfall and should decrease the equity multiplier (i.e., increase the capital ratio) to prevent bank failure. Which of the following is one of things you can do to manage capital adequacy of the bank? a.Acquiring more reserves through borrowing from fed funds loansb.Selling the bank's holding of mortgage-backed securities and using the proceeds to decrease liabilitiesc.Repurchasing shares of the bankd.Increasing dividend payout ratio to reduce retained earnings.How does capital protect a bank from failure? Why are banks currently holding capital well above the minimum regulatory requirement? What are the ways in which a bank can increase its capital ratio?everything else equal, if the ratio of bank assets to bank capital decreases, the bank's return on equity: will remain constant will increase cannot be determined from the information provided will decrease
- Distinguish between illiquidity and insolvency for banks and discuss the role of capital in protecting against these problems.Explain how capital adequacy requirements may affect a commercial bank’s dividend payout and growth potential. If the bank anticipates a decrease in its capital adequacy ratio (capital to total asset ratio), what options are available to prevent the decline? What risks, if any, are there in each strategy... Banks’ managers do not want to mmaintain much capital because they do not bear fully the costs of their failure. In addition to this reason others claim that banks’ managers do not want to maintain higher levels of capital because higher levels of capital attract greater scrutiny from bank regulators. Comment on this claim. The two most pressing demands for liquidity from a bank come from, first, customers withdrawing their deposits. Identify and discuss the second demand on the bank for liquidity.Bank regulators set minimum capital standards to force banks to follow socially desirable policies. True\false. Explain
- What are bank assets used for? Bank liabilities are the sources of bank ________? Bank capital is the contribution of the bank's owners; it acts as a cushion against what? Banks make a profit for their owners. Measures of a bank's profitability include what four things? Banks' off-balance-sheet activities have become increasingly important in recent years. What are these two things? Banks face several types of risk in day-to-day business. List them:4: Which of the following statements about bank capital are TRUE? Banks hold equity capital to make sure they have enough cash to withstand deposit outflows. Banks with larger leverage ratios have less capital per dollar of assets. A bank holds equity capital to prevent insolvency. The level of bank capital is determined by the owners of the bank without any regulation. The only goal for capital adequacy management is to earn a high return with low risk. The level of bank capital will decrease when a bank has to write-down the value of an asset.Which of the following is NOT an advantage of depositing funds into a bank account (compared to directly purchasing corporate bonds and shares): Options 1. Higher transactions costs 2. Monitoring performed by the bank on behalf of the depositor 3. Better liquidity if funds are needed quickly 4. Efficient payment services 5.Reduced price risk if funds are needed immediately
