Off-balance-sheet activities have become an important source of fee income, even though losses on these activities can cause a financial institution to fail.

Question

Quizplus · Accepted Answer

Off-balance-sheet activities, such as derivatives trading and securitization, can generate significant fee income for financial institutions. However, if these activities result in losses, they can still pose a risk to the institution and its financial stability. This was seen during the financial crisis of 2008, where off-balance-sheet activities played a role in the failure of several major financial institutions.

Off-Balance-Sheet Activities Have Become an Important Source of Fee Income