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The more bank capital the bank holds on its balance sheet, the better off are its...

The more bank capital the bank holds on its balance sheet, the better off are its equity holders. Is this true, false or uncertain? Explain.

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Answer #1

The statement is True

The bank capital refers to the worth of the bank and it includes Cash, Mortgages, letter of credits and government securties etc., If the bank has more capital then the bank can invest in diversified portfolios which will increase the return on investment thus generating more earnings which will result in stronger balance sheet and confidence of the investors.

This action will improve the rate of return to Shareholders too, who are the owners of the company/bank.

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