Critically analyze concepts behind MBSs and how risk was diversified to secure lending. Analyze what exposure banking institutions had to the subprime mortgage crisis and how MBSs contributed to this exposure
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Critically analyze concepts behind MBSs and how risk was diversified to secure lending. Analyze what exposure banking institutions had to the subprime mortgage crisis and how MBSs contributed to this exposure
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- Explain the concept of “Value-at-Risk” (VAR) in the context of banks’ credit risk management. How is VAR linked to regulatory capital requirements?How does a bank try to achieve the best possible risk adjusted return on its overall loan portfolio?Define the Credit Risk and include in your discussion examples of the Credit Risk and why Financial Institutions are particularly susceptible to this Risk. Discuss ways to measure, manage and mitigate the Credit Risk.
- (a). Distinguish Commercial banks and Micro-Finance Institutions (MFIs) by function and objective. (b). How insolvency risk can be managed or mitigated by financial institutionsAnalyse what exposure banking institutions had to the subprime mortgage crisis and how MBSs contributed to this exposureWhat risks might commercial bank operations face by funding long-term loans such as mortgages to borrowers (often at fixed interest rates) with short-term deposits from savers? What steps could the financial institution take to reduce these risks?
- What is evergreening in banking and why it may arise as an equilibrium choice of banks. Carefully explain all relevant concepts and mechanisms. Additionally discuss how much of a problem this may present in the aftermath of a banking crisis.Explain the following concepts in relation to the role that banks play in financial markets: i) Loan size transformation ii) Maturity transformation iii) Risk transformationDistinguish between the activities of retail and investment banks and discuss howthis has an impact on their approaches to risk management.
- Explain the importance of credit delinquency management & loan portfolio auditExplain commercial banks’ brokerage and intermediation functions. Clearly detail how these functions help overcome the information costs, liquidity risk and price risk arising from financial investments.Methods/instruments that banks use to hedge the risks pertaining loans