Over the past 10 years, a bank has experienced the following loan losses on its C&I loans,

consumer loans, and total loan portfolio.

Year C&I Loans Consumer Loans Total Loans

2018 0.0080 0.0165 0.0075

2017 0.0088 0.0183 0.0085

2016 0.0100 0.0210 0.0100

2015 0.0120 0.0255 0.0125

2014 0.0104 0.0219 0.0105

2013 0.0084 0.0174 0.0080

2012 0.0072 0.0147 0.0065

2011 0.0080 0.0165 0.0075

2010 0.0096 0.0201 0.0095

2009 0.0144 0.0309 0.0155

Using regression analysis on these historical loan losses, the bank has estimated the following:

XC= 0.002 + 1.8XL and Xh= 0.003 + 0.9XL

where XC= loss rate in the commercial sector, Xh= loss rate in the consumer (household) sector, and XL= loss rate for its total loan portfolio.

a. If the bank's total loan loss rates increase to 15 percent, what are the expected loss rate increases in the commercial and consumer sectors?(2 marks)

b. In which sector should the bank limit its loans and why?(2 marks)