The use of an up-front fee by a bank eliminates the contingent risk on a loan commitment.

Question

Quizplus · Accepted Answer

An up-front fee does not eliminate the contingent risk on a loan commitment because the bank still faces the risk that the borrower might not draw on the loan, or if they do, they might default on repayment. The fee is simply a charge for agreeing to provide the loan if the borrower decides to take it, not a mitigation of all potential risks involved.

The Use of an Up-Front Fee by a Bank Eliminates