Pooling risk
A)refers to a default contract made by a bank to other banks.
B)refers to spreading the risk of loan default among all the depositors within the depository institution.
C)is now illegal under the Nuisance Act of 2014.
D)occurs when one person lends to an entire group or pool of borrowers.
E)refers to the lower cost of obtaining funds from a depository institution.

Question

Quizplus · Accepted Answer

Pooling risk refers to spreading the risk of loan default among all the depositors within the depository institution. This is a common practice in banking to mitigate the risk of default on loans. By pooling risk, the bank can reduce the risk of losses due to defaults, as the risk is spread across many depositors rather than being concentrated on one borrower. This helps to make the bank more stable and reduces the likelihood of a bank run.

Pooling Risk