Why is it incorrect to say that the lower ROE caused by higher bank capital will lead to lower shareholder value in banking, independently of any tax advantage of debt?

Question

Quizplus · Accepted Answer

The Answer is The tax deductibility of debt favors leverage, but this is so for all firms, not just banks.Apart from taxes, while it is true that higher capital will lead to a lower ROE, it will also lead to a lower expected return for the bank's shareholders, so that there is no effect on the NPV to the shareholders who are investing in the bank.

Why Is It Incorrect to Say That the Lower ROE