Amalie Winters, FRM, is approached by her boss to prepare a brief presentation on factors that lead to suboptimal loan recovery rates. Upon reading the presentation, her boss questions the following two statements in the report:
Statement 1 is incorrect. "Creditors’ run" occurs when creditors collectively withdraw their funding (not their claims) from a firm experiencing financial problems. This may lead to inefficient firm behavior and lower loan recovery rates. Statement 2 is correct.
