1988•Illinois Digital Environment for Access to Learning and Scholarship (University of Illinois at Urbana-Champaign)Open access
Asymmetric information and financial intermediation / 1452
Yoon Dokko, Jae-Cheol Kim
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Abstract
This paper analyzes the evolutionary process of the bank as an asset transformer.First, the bank must have a cost advantage in acquiring information about the assets to be invested.If investors do not trust information produced by the bank, it would be in the best interest of the bank to engage in asset transformation, though pro- bably a second best choice due to a credibility constraint.If the bank is less risk averse than investors, asset transformation could be a first best choice of the bank and the most efficient form of banking in terms of social welfare.
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