Question

If a bank is falling short of meeting its capital requirements by $\$1$million, what three things can it do to rectify the situation?

Short answer

Maintaining sufficient level of capital is one of the important tasks of banks. Bank can use different strategies to meet the shortfalls of capital requirements.

Step-by-step solution

Step 1:Concept introduction

A bank is missing the mark concerning meeting its capital prerequisites by$\$1$million.

Adequate capital balance 

The sufficient capital equilibrium is essential for the bank. Bank generally attempts to keep up with adequate equilibrium in capital. Satisfactory degree of capital assists with forestalling bank disappointment. The fitting capital construction guarantees positive re-visitations of value holders.

Three strategies to correct the crisis 

If the bank is dropping short of fulfilling its capital essentials by $\$1$million it can adopt the following three strategies to correct the crisis:

1. Bank can increase capital by issuing $\$1$million common stock.

2. Bank can decrease the amount of dividend by $\$1$million which paid to the shareholders and thereby guarantee that it has maintained earnings worth that amount.

3. Bank can reduce its assets by giving lesser loans or marketing securities.

Step 4:Final answer

Maintaining sufficient level of capital is one of the important tasks of banks. Bank can use different strategies to meet the shortfalls of capital requirements.