The bundling of mortgages together and the issuing of securities for their financing made it possible for investment banks to
A) reduce their exposure to risk in the event that the overall mortgage default rate rose.
B) reduce the amount of capital required to back these bundled securities.
C) build up large reserves so they would be able to meet their obligations even if the mortgage default rate rose substantially.
D) quickly access funds to meet short-term debt obligations.

Question

Quizplus · Accepted Answer

Bundling mortgages into securities, known as securitization, allowed investment banks to reduce the amount of capital required to back these securities by transferring the risk to investors who bought the securities.

The Bundling of Mortgages Together and the Issuing of Securities