When banks use specialized resources to monitor borrowers, they are
A) pooling risk.
B) lending to only high-risk borrowers.
C) minimizing the cost of assessing borrowersʹ creditworthiness.
D) lowering the cost of creating liquidity.

Question

Quizplus · Accepted Answer

By using specialized resources to monitor borrowers, banks can minimize the cost of assessing borrowers' creditworthiness. This is because these resources are typically more efficient and effective at evaluating credit risk than a traditional loan officer or underwriter. By reducing the cost of assessing credit risk, banks can make more informed lending decisions while also lowering their operating costs or passing those savings along to borrowers in the form of lower interest rates.

When Banks Use Specialized Resources to Monitor Borrowers, They Are