Explanation:
Securitization involves transferring assets off the balance sheet and receiving cash (which has zero duration) in return. Therefore, securitizing long- and medium-term assets will generally decrease the average duration of the bank's balance sheet assets. The other options are typical motivations for securitization: it diversifies funding sources, increases ROE (by lowering the equity required to back the assets), and removes credit risks from the balance sheet.
611.1. Roundcore Bank is going to securitize a portfolio of long- and medium-term commercial real estate loans that it originated during its most recent fiscal year. Which of the following is the LEAST likely to be the bank's motivation?
A
Diversify its funding mix
B
Increase return on equity (ROE)
C
Increase average duration of balance sheet assets
D
Remove certain credit risks from the balance sheet
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