The explicit characterisation of the impact of asymmetric information on the relationship between borrowers and lenders is a further approach to describing banks. This strand of the literature focuses on the prevalence of superior information with regard to the success of investment projects on the side of the borrower vis-à-vis the bank. The approach thus distinguishes between borrowers that are able to repay their loans and those that are not. The spread between loan and deposit rates in part insures the bank against the costs resulting from defaulting borrowers. 3 A similar approach focuses on the depositor-bank relationship, and.
