What happens to a bank that has capital levels below those required?

When a bank has capital levels below the required thresholds, it is subject to increased scrutiny and possible intervention from regulatory authorities. This is because maintaining adequate capital levels is crucial for the stability and soundness of the financial institution. Insufficient capital can indicate a higher risk of insolvency, which threatens the bank's ability to meet its obligations and protect depositors' funds.

Regulators may implement various measures to address this situation, which could include increased monitoring of the bank's operations, imposing restrictions on its activities, or requiring the bank to raise additional capital. This oversight aims to ensure that the bank returns to compliance with capital requirements to mitigate risks to the financial system and maintain depositor confidence.

In contrast, the other options do not align with regulatory practices related to capital requirements. There are no bonuses for inefficiency or low capital levels, and lowering loan interest rates would not address capitalization issues. Additionally, banks cannot be exempt from regulations despite deficiencies in capital, as regulations are in place to protect the banking system and the economy as a whole.