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There are two main types of risks associated with bank lending. First is default risks arising out of non-payment of interest and principal by borrowers. This risk is mitigated by stipulating higher margins from the borrowers and obtaining mortgage of property by way of collateral security. The second type of risk arises due to changes in Rate of Interest affecting bank profitability. Banks cushion it through increasing their non-interest income through bill, treasury, custodial and merchant banking services. Besides there are other types of risks in bank lending like mortgage, theft and fraud risks. These risks are covered through various insurance and legal measures.
Toggle Commented Dec 3, 2019 on Is Bank Lending A Concern? at Tim Duy's Fed Watch
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Dec 3, 2019