Question

1. Why don’t banks hold more capital than they do? 2. What are some of the...

1. Why don’t banks hold more capital than they do?

2. What are some of the problems with using the book value of capital?

3. What determines the market-to-book ratio (difference between market and book values) of capital?

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Answer #1

1. Basel III new capital requirements. The theory is that this capital should be able to absorb big losses, if banks run into trouble. The International Basel III accord forces banks are hold unto to more high quality capital at all times.

2. Do not have an idea about that answer

3. Market value: The market value is the value of the company according to the financial markets. The market value of a company is calculated by multiplying current stock price by the number of outstanding share that are trading in the market.

Book value:The book value of the stock is theoretically the amount of money that would be paid to the shareholders of the company was liquidated and paid off its all liabilities.

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