Question: Suppose that a bank has a return on equity capital
Suppose that a bank has a return on equity capital of 12 percent and that its retention ratio is 35 percent. How fast can this bank's assets grow without reducing its current ratio of capital to assets? Suppose that the bank's earnings (measured by ROE) drop unexpectedly to only two-thirds of the expected 12 percent figure. What would happen to the bank's ICGR?
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