If a bank decides to hold less equity capital then other thi

If a bank decides to hold less equity capital, then, other things held constant,

choices:

a) the return on assets will increase.

b) the return on equity will decline.

c) the return on assets and return on equity will both increase.

d) the return on equity will increase.

e) the bank will find it less difficult to meet deposit outflows.

Solution

If a bank decides to hold less equity capital, then, other things held constant,

a) the return on assets will increase.

b) the return on equity will decline.