Why Do Banks Engage in Credit Rationing? If a Potential

question 58

Essay

Why do banks engage in credit rationing? If a potential borrower appears to be a poor credit risk, why don't banks simply charge a high enough interest to compensate for the increased probability of default?

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Definitions:

Title

A legal term referring to the legal rights of ownership and possession of a particular property or asset.

Encumbrances

Legal claims or liabilities on property or assets that may affect their use or transferability, such as mortgages or liens.

Obligation

A legal or moral commitment to perform or refrain from performing some action.

Commission

A fee paid to an agent or employee for facilitating a sale or service.