Provide One Argument in Favor of and One Argument Against

question 100

Essay

Provide one argument in favor of and one argument against each of the following proposals to prevent future financial crises. a. require shadow banks to hold more capital,
b. give the FDIC resolution authority over shadow banks,
c. impose higher capital requirements on larger banks,
d. prohibit banks from making speculative investments.

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Definitions:

Cost of Equity

The return that investors require for an investment in a company, representing the compensation for the risk taken.

Financing

Allocating resources for the purposes of business ventures, buying goods, or making investments.

Risk

The potential for losing something of value, or the potential for an investment's actual return to differ from its expected return.

Economic Value Added

A measure of a company's financial performance based on residual wealth, calculated by deducting a firm's cost of capital from its net operating profit.