CPB Credit & Lending Solutions for Private Clients

Question 1

What is a Lombard loan in private banking?

Accepted Answer

A loan secured by a portfolio of financial securities

Answer

A Lombard loan is a collateralized credit facility secured by a portfolio of financial assets such as stocks, bonds, or mutual funds, commonly used in private banking.

Question 2

Which metric is most commonly used to determine the maximum loan amount in securities-backed lending?

Accepted Answer

Loan-to-value (LTV) ratio

Answer

The LTV ratio compares the loan amount to the market value of the pledged securities, setting the ceiling for how much can be borrowed against the portfolio.

Question 3

What typically triggers a margin call in a pledged securities credit facility?

Accepted Answer

The portfolio value falls, pushing the LTV ratio above the agreed maximum

Answer

A margin call occurs when the pledged portfolio's market value declines enough that the LTV ratio breaches the contractual maximum, requiring the client to add collateral or repay part of the loan.

Question 4

What is concentration risk in the context of securities-backed lending collateral?

Accepted Answer

The risk that collateral is heavily weighted in a single security or sector

Answer

Concentration risk in collateral arises when pledged assets are dominated by a single issuer, sector, or asset class, making the portfolio value highly vulnerable to adverse moves in that area.

Question 5

Which type of private banking credit facility provides ongoing, revolving access to funds without a fixed repayment schedule?

Accepted Answer

Line of credit

Answer

A line of credit gives the borrower flexible, revolving access to funds up to a predetermined limit, allowing draws and repayments as needed without a rigid schedule.

CPB - Certified Private Banker Practice Test

CPB - Certified Private Banker Practice Test

CPB Credit & Lending Solutions for Private Clients