Financial Risk Manager Part 2
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A financial regulatory analyst is conducting a study to understand why it is important for banks to include scenarios that portray both normal and adverse market conditions during their credit assessment process. The analyst is specifically comparing the implications of bank collapse versus bank insolvency, focusing on how these two events impact the credit evaluation process differently. Based on this context, which of the following statements is correct?
A
Both bank insolvency and bank failure are major concerns for the bank's counterparties even if the bank still has a source of liquidity under insolvency.
B
For retail depositors, the expected loss on their deposits is the same whether the bank fails or becomes insolvent.
C
The rate of corporate failure during normal market conditions is the same for banks and for nonfinancial corporations.
D
As lender of last resort, a central bank provides capital to a bank in financial distress for the same reason whether the bank is considered "too big to fail" or "too small to fail."