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Investments in Commercial Banks

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Commercial banks moved heavily into equipment leasing during the early 1970's, acting as lessors. One major reason for this invasion of the leasing industry was to gain the benefits of accelerated depreciation and the investment tax credit on leased equipment. During this same period, commercial banks were investing heavily in municipal securities, and they were also loans to real estate investment trusts (REITs). In the mid-1970s, these REITs got into such difficulty that many banks suffered large losses on their REIT loans. Explain how its investments in municipal bonds and REITs could reduce a bank's willingness to act as a lessor.

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The initial attraction towards leasing for the banks was the benefits of accelerated depreciation and investment tax credit for the banks, which were paying ...

Solution Summary

An explanation of how investments in multicultural bonds and REITs could reduce a bank's willingness to act as a lessor.

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