Economics · Macroeconomics and Banking
A regional bank identifies that during the last 18 months, there has been a steady rise in the 'Yield Spread' between long-term corporate bonds and short-term government treasury bills. Concurrently, the consumer confidence index has started to plateau. Using the knowledge of business cycle indicators, if you were the Chief Risk Officer of this bank, what strategic shift in the loan portfolio would you recommend to the board?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Maintain the current status quo as yield spreads are purely decorative and have no predictive value for banking.
- 2Aggressively expand credit to the real estate sector as rising spreads indicate a booming economy.
- 3Shift the portfolio toward defensive sectors like utilities and essential services, while increasing provisions for credit losses.✓
- 4Increase exposure to high-yield unsecured personal loans to take advantage of the current high interest rates.
Correct answer
Shift the portfolio toward defensive sectors like utilities and essential services, while increasing provisions for credit losses.
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