Advertising

Adverse selection problem

• Banks have to be aware of a particular type of borrowers. Some borrowers will have hidden negative information not available to the bank. As the bank demands a higher interest rate, borrowers with safe projects will drop out. Hence, the fraction of borrowers with risky projects will depend on the interest rate. The higher the interest rate, the higher risk will be the pool of applicants. This is called the adverse selection problem.

 
 Embedded terms in definition
 Adverse selection
Interest rate
Interest
Out
Pool
Risk
Type
Will
 
 Related Terms
 Adverse selection
Agency problem
Asset substitution problem
Country selection
Credit selection
Currency selection
Replacement chain problem
Security selection
Security selection decision
Self selection
Stock selection
Underinvestment problem

<< Adverse selection Ae >>

Managing Your Expenses on a Fixed or Reduced Income: Once you've retired, you finally have the opportunity to work at your dream job - keeping yourself happy. It's your chance to visit places you've always wanted to see, take up a new hobby and spend more time with your family and friends. But to be successful at this new position, you've got to make the most of your income and investments. Here are suggestions. More...

A true friend is someone who is there for you when they would rather be someplace else. - Len Wein

Advertising



Copyright 2009-2017 GVC. All rights reserved.