Bank capital performs several important roles except:

Question

BlackTom AI · Accepted Answer

To analyze the question, we look at the roles of bank capital and then evaluate each statement.
Option a: 'increasing the bank's interest rate margin.' This is not a primary role of capital. Capital does not directly set or widen the interest rate margin; margins come from the spread between loan yields and funding costs, along with the bank's credit risk and pricing strategies. Capital mainly serves as a cushion and supports stability, not as a tool to push margins up by itself. This makes option a unlikely to be a key function of bank capital.
Option b: 'serving as a source of funds for expansion.' This is a recognized role of bank capital. Higher capital provides trust and scalability, enabling the bank to undertake growth, meet regulatory requirements, and absorb losses as it expands its lending and other activities.
Option c: 'helping to maintain public confidence and avoid bank runs in case of loan borrowers default.' This is a central purpose of capital. A strong capital base absorbs losses from defaults, signaling financial resilience to depositors and counterparties, which helps prevent panic and runs.
Option d: 'providing some protections to the depositors in case of liquidation.' This is another established role. In liquidation scenarios, capital helps absorb losses before depositors, contributing to depositor protection and orderly resolution.
In sum, options b, c, and d align with well-known functions of bank capital—supporting growth, stabilizing the bank during losses, and protecting creditors and depositors—whereas option a does not describe a fundamental capital function. Therefore, option a is the statement that does not reflect a primary role of bank capital.

Bank capital performs several important roles except:

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