12-27 If a bank's concentration limit (as a percent of capital)is 20 percent,and its expected recovery from defaulted loans is 50 percent,what is the maximum loss it permits to affect its capital in the event of a default?

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The maximum loss permitted is calculated by considering the concentration limit and the expected recovery rate. If the concentration limit is 20% and the recovery rate is 50%, the maximum loss is 50% of 20%, which is 10%.

12-27 If a Bank's Concentration Limit (As a Percent of Capital)is