Bank's capital includes:

Question

BlackTom AI · Accepted Answer

To evaluate the statement, begin by identifying what constitutes a bank's capital. Bank capital typically comprises the shareholders' funds (equity) plus accumulated retained profits that are reinvested in the business, serving as a cushion against losses and supporting financial stability.
Option a: 'deposits and Shareholder's funds.' Deposits are liabilities to the bank (customer funds that the bank owes), not part of the bank's capital. So this pairing incorrectly includes a liability with capital.
Option b: 'borrowed funds and accumulated retained profits.' Borrowed funds are also liabilities (debt) rather than capital. While retained profits are part of equity, the inclusion of borrowed funds makes this option inaccurate for capital.
Option c: 'deposits and borrowed funds.' Both components are clearly liabilities to the bank, not capital. Combining two liabilities does not reflect the bank's own net worth or cushion against losses.
Option d: 'shareholder's funds and Accumulated retained profits.' This combines equity (shareholder's funds) with retained earnings (accumulated profits that have not been distributed as dividends), which together form the core of bank capital used to absorb losses and support growth.
In summary, the crucial distinction is between funds the bank owes to others (deposits, borrowings) and the funds that belong to the owners (equity) plus reinvested earnings (retained profits). The correct concept aligns with option d, where the elements are internal resources that constitute capital rather than external liabilities.

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Bank capital performs several important roles except:

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