Suppose households attempt to lend directly to firms instead of depositing funds in banks.

Which combination of factors from the lecture best explains why banks can perform this role more efficiently than individual households?

Question

Suppose households attempt to lend directly to firms instead of depositing funds in banks.

Which combination of factors from the lecture best explains why banks can perform this role more efficiently than individual households?

Accepted Answer

Banks pool deposits and exploit economies of scale in collecting information and monitoring borrowers.

Answer

Banks eliminate all credit risk by guaranteeing loan repayment.

Answer

Banks convert corporate equity into government securities.

Answer

Banks prevent borrowers from undertaking risky projects after receiving funds.

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