The ABC Bank takes funds from depositors and gives out commercial, housing and car loans. Now, instead of keeping the housing and car loans on its books, it sells them to a hedge fund. However, the borrowers still make payments to ABC Bank which then remits the payments to the hedge fund. The bank receives a fee from the hedge fund for servicing the loans. Discuss two (2) advantages to ABC Bank from switching its housing and car loans business to the fee-based income model of banking instead of earning an interest spread (difference in interest between what the bank charges its customers and pays its depositors).
The ABC Bank takes funds from depositors and gives out commercial, housing and car loans. Now, instead of keeping the housing and car loans on its books, it sells them to a hedge fund. However, the borrowers still make payments to ABC Bank which then remits the payments to the hedge fund. The bank receives a fee from the hedge fund for servicing the loans. Discuss two (2) advantages to ABC Bank from switching its housing and car loans business to the fee-based income model of banking instead of earning an interest spread (difference in interest between what the bank charges its customers and pays its depositors).
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter6: Cash And Receivables
Section: Chapter Questions
Problem 12C: Researching GAAP Situation Hamilton Company operates in an industry with numerous competitors. It is...
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The ABC Bank takes funds from depositors and gives out commercial, housing and car loans. Now, instead of keeping the housing and car loans on its books, it sells them to a hedge fund. However, the borrowers still make payments to ABC Bank which then remits the payments to the hedge fund. The bank receives a fee from the hedge fund for servicing the loans.
Discuss two (2) advantages to ABC Bank from switching its housing and car loans business to the fee-based income model of banking instead of earning an interest spread (difference in interest between what the bank charges its customers and pays its depositors).
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