Adverse Selection and Access to Credit Exposure

In the finance business, especially in lending business, it is suppose that a borrower lender knows more than its lender. Let say a bank have more informational advantage regarding the borrower credit risk. In the stage of being more advantage, bank may find it more profitable to limit borrower lender’s access to bank’s credit, instead of permitting borrowers to choose the sizes of their own loans without limitation and restriction. (more…)