Consider two banks. Bank A has 1000 loans outstanding each for a $100,000 that it expects to be fully repaid today. Each of Bank A's loans have a 6% probability of default, in which case the bank will receive $0 for each of the defaulting loans. Bank B has 100 loans of $1 million outstanding, which it also expects to be fully repaid today. Each of Bank B's loans have a 5% probability of default, in which case the bank will receive $0 for each of the defaulting loans. The chance of default is independent across all loans. The expected overall payoff to Bank is: $95,000,000 $5,000,000 $6,000,000 $94,000,000 Consider two banks. Bank A has 1000 loans outstanding each for a $100,000 that it expects to be fully repaid today. Each of Bank A's loans have a 6% probability of default, in which case the bank will receive $0 for each of the defaulting loans. Bank B has 100 loans of $1 million outstanding, which it also expects to be fully repaid today. Each of Bank B's loans have a 5% probability of default, in which case the bank will receive $0 for each of the defaulting loans. The chance of default is independent across all loans. The expected overall payoff to Bank is: $95,000,000 $5,000,000 $6,000,000 $94,000,000