As banks increase their equity capital in order to balance the risk in their behavior, the __________ will put pressure on the bank to reduce risk taking.

Question

a. international bank regulators
b. depositors
c. banks’ clients
d. shareholders
e. federal government

Answer 1

The correct answer is d. shareholders.

As banks increase their equity capital, shareholders typically want to see a return on their investment. Higher equity capital can lead to reduced profits in the short-term if not managed properly, causing pressure on banks to reduce risk-taking behavior to maintain profitability and deliver returns to shareholders.