Lecture 19 - More Information on Business Loan Terms

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EXAM - Possible questions include understand general characteristics of commercial loans, e.g., maturity, administrative costs, base rates, collateral, prepayment penalty, loan commitments, and interrelationships between lending rates and base or benchmark rates.  Be able to interpret the bank lending risk ratios with respect to increasing or decreasing risk.  Understand the maturity risk premium (short-term vs. long-term) and the maturity mismatch problem associated with short-term funding/liabilities and long-term assets.  Understand how loan losses behave during and after recessions and how the losses associated with different loan types may or may not move together. 

See the information below.

 

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OPTIONAL: NOT ON EXAM

For a detailed analysis of LIBOR and other international market benchmark or reference rates see “LIBOR: Origins, Economics, Crisis, Scandal, and Reform,” David Hou and David Skeie, FRBNY Staff Report No. 667, March 2014, at http://www.newyorkfed.org/research/staff_reports/sr667.pdf.

Skim the following article that discusses possible alternative benchmark rates to LIBOR. 

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