QUESTION 4 (5 marks) Regulators are concerned about credit risk in the banking system and the ability of banks to manage this risk. Briefly explain how regulators use capital adequacy to manage credit risk in the bank's loan portfolio. Lending institutions frequently require collateral as a condition for a loan. The collateral taken may influence the lending rate and the maximum amount the lending institution may offer. Why do lenders require collateral and state four characteristics of acceptable collateral? QUESTION 4 (5 marks) Regulators are concerned about credit risk in the banking system and the ability of banks to manage this risk. Briefly explain how regulators use capital adequacy to manage credit risk in the bank's loan portfolio. Lending institutions frequently require collateral as a condition for a loan. The collateral taken may influence the lending rate and the maximum amount the lending institution may offer. Why do lenders require collateral and state four characteristics of acceptable collateral