Bank X had a reputation for asking few questions when it provided loans. Five years later, the majority of the loans were not repaid. This is because the bank had failed to address the

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The adverse selection problem refers to the situation where the lender cannot distinguish between good and bad borrowers, and hence lends to both. In this scenario, Bank X was known for not asking too many questions when providing loans, which means that it did not take into account the creditworthiness and ability to pay back of the borrowers. As a result, the majority of the loans were not repaid. This indicates that the bank had an adverse selection problem, where it provided loans to borrowers who were more likely to default.

Bank X Had a Reputation for Asking Few Questions When