21-22 The conflict of interest that occurs when a bank suggests the issuance of capital market debt for the purpose of reducing bank loans under conditions of deteriorating or questionable firm financial health is commonly referred to as bankruptcy risk transference.

Question

Quizplus · Accepted Answer

This statement is true. The practice of transferring the risk of bankruptcy from a company to its lenders through the issuance of capital market debt is commonly referred to as bankruptcy risk transference. It can be seen as a conflict of interest as the bank may benefit from the increased fees and commissions associated with the debt issuance, but at the same time, may be putting their own financial stability at risk if the company defaults on the debt.

21-22 the Conflict of Interest That Occurs When a Bank