Most individuals save at banks rather than lend directly because:

Question

Quizplus · Accepted Answer

Banks have the ability to reduce the cost of information asymmetry through their expertise in evaluating borrowers and monitoring loans. This makes it safer and more efficient for individuals to save and invest through banks instead of directly lending to borrowers themselves. Option A is incorrect because banks actually help reduce information asymmetry. Option B is incorrect because moral hazard still exists even when banks issue loans. Option D is incorrect because information asymmetry is a problem for both individuals and banks, but banks are better equipped to handle it.

Most Individuals Save at Banks Rather Than Lend Directly Because