Chapter 6

Bank Lending


Lending is the primary activity of banks and is also one of the banking products most susceptible to disruption. The lender seeks to earn a return on funds advanced, and the borrower requires capital for either investment or consumption purposes. A loan provides resources to a borrower now in exchange for the promise of the borrower to make repayment in the future. Loans are also important for executing monetary policy. Loans can be secured by collateral or unsecured. Interest rates can be fixed or tied to an index such as London InterBank Offering Rate. Consumer loans include mortgages, car loans, credit card balances, and student loans. The most widely used credit scoring system is Fair Isaac Company (FICO). Loans ...

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