Question

The Capital Purchase Program carried out under TARP represented an attempt by the federal government to increase the capital of banks. Why would the federal government consider it important to increase bank​ capital? A. To keep banks with falling asset values solvent. B. To keep attracting new clients. C. To raise​ banks' profits. D. To keep inflation low. What might be some of the consequences of banks having insufficient​ capital? A. High profits. B. Insolvency.   C. Low profits. D. A wide range of clients.

Answer 1

Answer:

A. To keep banks with falling asset values solvent.

Explanation:

When a bank is failing it will result in loss of funds not only for the bank but also for customers that have accounts in these banks.

If a bank eventually closes operations as a result of insolvency, they will not be able to pay off the customers. That is where the deposit insurance comes in to settle customers.

The government will have to spend a lot of money reimbursing customers their money.

To avoid this the federal government ensures the capital of banks is maintained to keep banks with falling asset values solvent.