For failed banks, long-term debt serves the role of absorbing unexpected operating losses.

Question

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Long-term debt is a type of financing that is used by banks to raise capital. It is typically used to fund long-term projects, such as the purchase of new equipment or the construction of new branches. In the event of a bank failure, long-term debt can be used to absorb unexpected operating losses. This is because long-term debt is typically secured by collateral, such as real estate or other assets. As a result, it is less likely to be lost in the event of a bank failure.

For Failed Banks, Long-Term Debt Serves the Role of Absorbing