A case can be made that regulators should set minimum capital requirements for banks because, if left to decide for themselves, banks would choose to hold less capital than would be socially optimal. Which of the following correctly makes that case?
A. Banks can increase ROE, given ROA, by holding less capital.
B. Banks cannot effectively solve the problems arising out of asymmetric information and make loans that are excessively risky.
C. Bank managers cannot be trusted to act in the best interest of bank owners because of the principal-agent problem.
D. Banks get all the benefit of taking on more risk, but some of the costs are externalized by shifting them to uninsured depositors, the FDIC, and other banks.
E. All of the above.