Question
Consider the following statements: 1. Capital
Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues 2. CAR is decided by each individual bank. Which of the statements given above is/are correct?Solution
Statement 1 is correct : Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues. Statement 2 is incorrect : It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process
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