How do banks help to overcome the problem of asymmetric information?

Question

Quizplus · Accepted Answer

Banks help to overcome the problem of asymmetric information by acquiring expertise in evaluating the credit histories of the borrowers. This involves analyzing the borrower's financial statements, credit score, credit history, and other relevant financial information to determine their creditworthiness. This helps to ensure that loans are only granted to borrowers who are capable of repaying them, which reduces the risk of default and improves the bank's overall financial health.

How Do Banks Help to Overcome the Problem of Asymmetric