Pooling of risk occurs when depository institutions
A) make assets more liquid.
B) specialize in loaning only to good borrowers.
C) bring lenders together.
D) lend to a variety of different borrowers.

Question

Quizplus · Accepted Answer

Pooling of risk is a strategy used by depository institutions to reduce the risk of loan defaults by lending to a diverse group of borrowers. By diversifying their lending portfolio across different types of borrowers, institutions can spread out their risk, ensuring that the failure of one or a few loans does not significantly impact their overall financial health.

Pooling of Risk Occurs When Depository Institutions