An advantage FIs have over individual household investors is that they are able to diversify away credit risk by holding a large portfolio of loans to different entities.This reduces

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Holding a large portfolio of loans to different entities helps to reduce firm-specific credit risk, which is the risk that a particular borrower will not be able to repay their loan. This is an advantage that FIs have over individual household investors. However, it does not reduce systematic credit risk, which is the risk of a widespread default or credit crisis affecting many borrowers at once. It also does not directly reduce interest rate or market risk.

An Advantage FIs Have Over Individual Household Investors Is That