Which one of the following four statements about regulatory capital for a bank is accurate?

Which one of the following four statements about regulatory capital for a bank is accurate?
A . Regulatory capital is determined by rules imposed by an outside authority, such as a supervisor or central bank.
B . Regulatory capital is the lowest level of economic capital the bank should have to meet regulatory requirement.
C . Regulatory capital reflects the economic tradeoffs of the bank as accurately as the bank can represent them.
D . Regulatory capital is less than the regulatory capital requirement.

View Answer

Answer: A

Explanation:

Regulatory capital is the minimum amount of capital that a bank is required to hold by financial regulators. These rules are imposed by outside authorities such as central banks or financial supervisory bodies to ensure the stability and solvency of financial institutions. This differs from economic capital, which is determined internally by the bank to cover its own estimated risk exposures.