Question 1) Using regression analysis on historical loan losses, a bank has estimated the following: Xc = 0

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Question 1) Using regression analysis on historical loan losses, a bank has estimated the following:

Xc = 0.002 + 0.8X1 and Xr = 0.002 + 1.8X1

where Xc equals the loss rate in the commercial sector, and Xr equals the loss rate in the retail sector, and X1 equals the loss rate for its total loan portfolio. 

Based on the regression analysis alone what sector should the bank limit its loans?

Reconcile the existence of both retail and commercial loans.

Question 2:

Discuss the kinds of coordination problems that can arise in loan workouts and how they can be resolved.