To reduce credit or default risk, a bank can
A) diversify lending
B) share the risk through loan participations
C) though selling loans to another bank or firm
D) All of the above

Question

Quizplus · Accepted Answer

All of the options provided are strategies banks can use to reduce credit or default risk. Diversifying lending spreads the risk across different borrowers and sectors, sharing risk through loan participations allows multiple banks to share in the loan and its associated risks, and selling loans to another bank or firm transfers the risk away from the original lender.

To Reduce Credit or Default Risk, a Bank Can