Question:
"Banks have plenty of motives for developing risk-based practices and the risk models. In addition, regulators made this development a major priority for the banking industry, because they focus on the ‘systemic risk', the risk the entire banking industry made up of financial institutions whose fates are intertwined by the density of the relationship within the financial system," Joel Bessis, Risk Management in Banking.
(a) Give brief descriptions of the following terms used in relation to risk management in Banking:
i. Expected loss
ii. Stress testing
iii. Restrictive covenants
iv. Securitization
(b) "Some theoretical arguments and country comparisons suggest that a less concentrated banking sector with many small banks is more prone to financial crises than a concentrated banking sector with a few large banks (Allen and Gale, 2000, 2003)". Critically assess the preceding quote.