If bad credit risks are the ones who most actively seek out loans to finance investments,and therefore receive them from financial intermediaries,then financial intermediaries face the problem of:

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Adverse selection occurs when one party in a transaction has more information than the other party, leading to an imbalance of information. In this case, bad credit risks are actively seeking out loans because they know they are a higher risk and are more likely to default on their payments. Financial intermediaries may not be aware of the full extent of the risk they are taking on by lending to these individuals, leading to adverse selection.

If Bad Credit Risks Are the Ones Who Most Actively