Banking Practice Exam

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Which of the following is typically a reason for banks to create non-bank subsidiaries?

To enhance liquidity

To avoid capital requirements

To expand their service offerings

Creating non-bank subsidiaries allows banks to diversify their service offerings beyond traditional banking products. By establishing these subsidiaries, banks can enter new markets or provide different types of financial services, such as wealth management, insurance, investment services, or specialized lending. This expansion not only broadens the bank's revenue streams but also enables it to serve a wider array of customer needs, ultimately enhancing competitiveness in the financial services industry.

While enhancing liquidity, avoiding capital requirements, and increasing loan amounts are relevant financial considerations, they do not directly relate to the primary motivation of expanding service offerings through non-bank subsidiaries. Enhancing liquidity focuses on managing immediate financial resources, avoiding capital requirements pertains to regulatory frameworks, and increasing loan amounts concerns credit policies rather than broadening the types of services provided.

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To increase loan amounts

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