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# Bank Information Asymmetry

## Definition

The situation where banks have better information about borrowers and investments than other market participants, which can affect credit allocation and risk assessment. Managing this asymmetry is crucial for effective banking.

## Source Chapter

Book II, Chapter 2

## Context

Smith analyses how information asymmetry affects banking operations and credit allocation. He shows how banks must develop methods to assess creditworthiness and manage the risks associated with information asymmetry.

## Economic Domain

Exchange

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