If bad credit risks are the ones who most actively seek loans then financial intermediaries face the problem of

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Adverse selection refers to the problem faced by financial intermediaries where they are more likely to receive loan applications from bad credit risks who actively seek loans, rather than good credit risks who may not need loans. This creates an imbalance in the lender's portfolio, causing potential losses due to defaults on loans.

If Bad Credit Risks Are the Ones Who Most Actively