Economics Help?
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Commenting on the surge in innovative home financing products such as adjustable rate, "interest-only" loans, with low % down payment requirements that have allowed borrowers to hold down their initial mortgage payments even as housing prices and mortgage debt have increased faster than household incomes, an FDIC regulator commented last summer: "During the long housing boomn, banks have engaged in risk warfare. In order to get wider spreads they have taken on more risk for the same spreads. Bank loan portfolios in the last few years have become riskier."
1. What does the phrase "wider spreads" in the above quote refer to? Spreads between what and what?
2. What does the quote imply happened to the size of default risk premiums during the "long economic boom?"
Economics Help?1. Between the interest rate they give to their savers and the one they charge to their borrowers.
2. They got smaller.
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