winthrop bank -curricum V2 P476-institution IPS

CFA Level III
#1

Hi, for Q9A, if we increase security portfolio duration given loan portfolio duration increase, what will happen?

I’m a bit confused, because loan portfolio is the asset side, the security porfolio is aslo asset side, why we need to hedge between each other in the same asset side?

Q9B, if they increase credit standard, that means they should buy tresury or high credit bond and discard low credit bond, why answer say they can buy below investment grade bond? thanks

#2

9B - they are raising the credit standards of their loan portfolio — means less risky so they can offset the risk in securities portfolio by investing in below investment grade bond in order to achieve better returns, keeping overall risk of the firm same.

Banks accept deposit & give loan. So left over funds are invested. Securities portfolio is generally used to balance/ offset the risk of the firm