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How does diversification affect financial institions credit risk exposure?
Wiki User
∙ 13y ago
Generally, diversification helps reduce the overall credit risk exposure for financial institutions by reducing their overall expected chargeoff rates.
Wiki User
∙ 13y ago
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How do limitations on domestic geographic diversification affect an financial institution profitability?
Any increase in profit due to economies of scale is lost on increased risky behavior from the company. As companies expand they inturpret risk differently, what used to be a risky endevor, "morgaged backed securities" now seems to have a smaller impact of risk compared to the larger size of the company. The only limitations on domestic geographic diversification that affects profitability are the ones managment creates though changes in policy due to increased market share.
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