Which of the following statements is TRUE regarding banks’ use of debt funding versus equity funding (for a given level of total assets)?

Question

Answer

Based on the regulatory compliance cost effect, banks should use more debt and less equity.

Answer

Based on the capital risk effect, banks should use more equity and less debt.

Answer

Based on the tax deductibility of interest expenses, banks should use less debt and more equity.

Answer

All of the above are correct.

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