As a senior loan officer at Taylor Lautner (TL) Financial Corp, you have a loan application from a firm in the biotech industry. While the loan has been approved on the basis of an individual loan, you must evaluate the loan based on its impact on the risk of the overall loan portfolio. The TL Financial Corp uses the following three methods to assess its loan portfolio risk. Should TL Financial Corp grant this loan based on the following 3 criteria and why or why not? Explain!

a. Concentration Limits - The TL Financial Corp currently has lent an amount equal to 40% of its capital to the biotech industry and does not lend to a firm in any sector that generates losses in excess of 2% of capital. The average historical losses in the biotech industry total 5%.

b. Loan Volume-based Model Loan portfolio allocations for National and TL Financial are as follows.

Allocation of Loan Portfolios in Different Sectors (%)

Sectors	National	TL Financial
Commercial	30%	40%
Real Estate	50%	45%
Consumer	20%	15%

TL Financial Corp. does not want to deviate from the national average by more than 12.25 percent.

c. Loan Loss Ratio-based Model - Based on regression analysis on historical loan losses, the TL Financial estimates the following loan loss ratio models:

XC&I = 0.001 + 0.85XL; and

Xcon = 0.003 + 0.65XL

where XC&I = loss rate in the commercial sector, Xcon = loss rate in the

consumer (household) sector, and XL = loss rate for its total loan portfolio. TL

Financial Corp.s total increase in the loan loss ratio is expected to be 12% next year.