Which of the following reflects a bank's ability to fulfill its financial obligations?

A bank's ability to fulfill its financial obligations is primarily reflected in its liquidity. Liquidity refers to the availability of liquid assets to meet immediate and short-term obligations. A highly liquid bank can quickly convert its assets into cash or easily access cash to pay off debts or withdraw requests from depositors. This is crucial during times of financial stress—when customers may withdraw funds en masse or when obligations may suddenly increase.

While asset quality, earnings, and capitalization each contribute to a bank’s overall financial health, they do not directly measure the immediate ability to meet obligations. Asset quality assesses the riskiness of the bank’s loan portfolio, while earnings indicate profitability over time. Capitalization refers to the funds a bank has to cover losses, but liquidity specifically highlights a bank’s capacity to respond to withdrawals and other obligations without significant delay or liquidation of assets.