1. Which of the following is NOT a reason for using a Bad Bank as a vehicle to add value in the loan sale process? a) Contracts for managers can be created to maximize the incentives to generate enhanced values from loan sales. b) The bad bank enables bad assets to be managed by loan workout specialists. c) The bad bank does not need to be concerned about liquidity needs since it does not have any deposits d) Moving the bad loans off the balance sheet of the good bank will improve the markets perception, and thus performance of the good bank e) The good bank bad bank structure increases information asymmetries regarding the value of the good bank's assets.
2. Recent research indicates that the spreads on HLT loans behave more like the spreads on investment grade bonds than like the spreads on junk bonds. What of the following is NOT one of the factors that might have played a role? a) HLT loans are more senior in bankruptcy proceedings b) HLT loans have greater collateral backing than do high yield or junk bonds. c) HLT loans have greater stronger covenant protection d) HLT loans can increase the borrower's financial leverage significantly e) None of the above.
3. Loan assignments make up more than 90 percent of the U.S. domestic loan sale market because a) They have lower capital requirements than other types of loan sales. b) They are riskier than are other types of loan sales. c) Monitoring costs are reduced since all rights are transferred upon sale. d) Regulators prefer these transactions to loan participations. e) There is no secondary market in loan participations.