What are the risks associated with the loan commitment provision
In Chapter 16 we discussed off-Balance -Sheet risks, and how loan commitments affect the balance sheet. What are the risks associated with the loan commitment provision? How do these risk impact the loan commitment? In your opinion which risk has the worse influence on the loan commitment?
Second question:
Historically, Financial Institutions received incentives by moving items off their balance sheets. In response, regulatory agencies began to issue capital mandates to acknowledge the risk of engaging in this activity. This helps off-set or prevent a financial crisis encountered by Financial Institutions and banks in years past. U.S. banks and insurance companies engage in several types of off-balance-sheet activities. What are the types of off-balance-sheet activities? What type of risks are encountered by banking institutions when they engage in these types of activities?
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