Bank capital performs several important roles except:

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Question restatement: Bank capital performs several important roles except:

Option a: providing some protections to the depositors in case of liquidation. This is a fundamental role of bank capital: it acts as a cushion that stands between creditors (including depositors) and losses, helping to absorb losses if the bank fails. This protects depositors to some extent and supports ongoing solvency.

Option b: helping to maintain public confidence and avoid bank runs in case of loan borrowers default. Capital strengthens a bank’s ability to withstand losses from defaults, which in turn supports confidence among customers and the market. A well-capitalized bank is less likely to face panic or runs because liquidity concerns are less acute. This is another established function of capital.

Option c: increasing the bank's interest rate margin. This statement is misleading. While capital adequacy influences risk management and funding costs, the margin between lending and funding rates (the interest rate margin) is primarily determined by pricing, competition, credit risk, operational costs, and market conditions, not by capital level itself. In other words, capital does not directly “increase” the interest rate margin as a designed purpose; this is not a core role of capital. Therefore, this option describes a feature that is not a primary function of bank capital.

Option d: serving as a source of funds for expansion. Capital provides internal funds that can be deployed for growth, acquisitions, or other expansions. This is a recognized use of bank capital and aligns with its role in supporting growth and resilience.

Summary: Options a, b, and d describe valid roles of bank capital, illustrating how capital supports solvency, confidence, and growth. Option c describes something that capital does not primarily accomplish, making it the exception. Since the question asks for the exception, option c is the correct identification of the statement that does not reflect a typical role of bank capital.

Bank capital performs several important roles except:

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