The major risk facing banks with loan commitments is that a large number of borrowers will take down their loans simultaneously and the bank may not have sufficient funds to make the loans. This is known as availability risk.

Question

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The major risk described is known as "liquidity risk," not "availability risk." It refers to the risk that a bank may not have enough liquid assets to meet its obligations if many borrowers draw on their loan commitments at the same time.

The Major Risk Facing Banks with Loan Commitments Is That