Supervisory concern with exposure norms, connected lending, and concentration limits arises because excessive exposure to a single borrower, group, or sector can threaten institutional stability. The main prudential rationale for such limits is to:

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Economics · Prudential Norms and Exposure Limits

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prevent concentration risk from impairing solvency and balance-sheet resilience

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Answer 1

encourage larger bets on highly visible sectors

Answer 2

prevent concentration risk from impairing solvency and balance-sheet resilience

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eliminate the need for credit rating and due diligence

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