The banks and FIs sell loan due to profits and reduce the some capital expenditures are mentioned below:
1. Reserve Requirement: Regulatory authority imposes non-interest bearing
requirements, are a form of tax that adds to the cost of funding the loan
portfolio. Regulatory taxes such as reserve requirements create an incentive
for banks to remove loans from the balance sheet by loan selling.
2. Fee Income:
Banks and financial institutions often report any income earned from selling loans. As a result, originating and quickly selling loans
can boost banks and financial institutions reported income under current accounting rules.
3. Capital Costs: The reserve requirements imposed as a burden as long as required capital exceeds the amount that they struggle to meet adequate
capital requirements holding more debt capital rather than equity capital.
4. Liquidity Risk: the liquidity is a major problem due to liabilities tends to be
highly liquid. To resolve it, some of its loans sales to outside investors and
significantly reduced the liquidity as assets on the balance sheet.