Question:

What is a correct statement concerning the relationship between the commercial bank model centered around holding mortgages on balance sheets and lending standards?

Group of answer choices

The incentives are perverse because holding mortgages on balance sheets incentivizes increasing overall risk.

If commercial banks hold mortgages on their balance sheets they are not incentivized to have high lending standards.$$ This is due to the fact if the mortgage is on a commercial bank's balance sheet it does not have to deal with the risk of the mortgage losing value.

If commercial banks hold mortgages on their balance sheets they are incentivized to have high lending standards and ensure that the bank is lending to creditworthy individuals.$$ This is due to the fact if the mortgage is on a commercial bank's balance sheet it has to deal with the risk of the mortgage losing value.

If commercial banks hold mortgages on their balance sheets they are disincentivized to have high lending standards. This is due to the fact if the mortgage is on a commercial bank's balance sheet the potential for lending profits are greatly increased.