One response to this uncertain environment has been a large increase in the volume and variety of loan commitments — promises by banks to make future loans at the customer's demand. These agreements provide commercial borrowers with assurance that funds will be available, often at a contractually set rate. One can view the loan commitment as an insurance contract, in which borrowers purchase protection against certain risks, and banks — as insurers — take risks upon themselves.
This article appeared in the May/June 1986 edition of Business Review.
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