Loan Quality of Bank Holding Companies
Like most types of depository institutions, commercial banks operate with a high degree of financial leverage; that is, their equity typically is small relative to their total assets. As a result, the loan quality and solvency of commercial banks are inextricably related. For this reason banking regulators, who are charged with preserving the safety and soundness of the nation’s banking system, are concerned with bank loan quality; businesses and households, who supply banks with investable funds, share these concerns.
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