📝 One-liners · 66 cards
Financial Stability
Why is financial stability classified as a public good?
Financial stability is a public good because its benefits are non-excludable (no one can be prevented from benefiting) and non-rival (one person's benefit does not reduce its availability to others).
What is adverse selection in banking and how does it threaten financial stability?
Rising rates drive away quality borrowers and attract high-risk borrowers.
What distinguishes financial stability from individual bank solvency?
Financial stability is concerned with systemic risk across the entire financial system, whereas individual bank solvency refers to whether a single institution can meet its obligations.
When does adverse selection occur in the lending process?
Before lending, when borrower quality deteriorates due to high interest rates.
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