Bank equity: acts as a cushion against loan defaults. is divided by total assets

Question

Bank equity:

acts as a cushion against loan defaults.

is divided by total assets to measure whether the bank is meeting capital requirements.

equals the market value of the banks assets minus their liabilities.

rises when the banks increases its profits.

all of the above.

acts as a cushion against loan defaults.

is divided by total assets to measure whether the bank is meeting capital requirements.

equals the market value of the banks assets minus their liabilities.

rises when the banks increases its profits.

all of the above.

Explanation / Answer

Correct option is (e).

Equity = Total assets - Total liabilities, which acts as a cushion against defaults by borrowers. When profit increases, equity increases. Capital requirement is measured by Leverage, computed as the ratio of equity to total assets.

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