Over the past 10 years, a bank has experienced the following loan losses on its C&I loans,

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Over the past 10 years, a bank has experienced the following loan losses on its C&I loans, consumer loans, and total loan portfolio.
Over the past 10 years, a bank has experienced the

Using regression analysis on these historical loan losses, the bank has estimated the following:
XC = 0.002 + 0.8XL and Xh = 0.003 + 1.8XL where XC = loss rate in the commercial sector, Xh = loss rate in the consumer (household) sector, XL = loss rate for its total loan portfolio.
a. If the bank€™s total loan loss rates increase by 10 percent, what are the expected loss rate increases in the commercial and consumer sectors?
b. In which sector should the bank limit its loans and why?

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Related Book For  answer-question

Financial Institutions Management A Risk Management Approach

ISBN: 978-0071051590

8th edition

Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders

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