THE GAMBLING ANALYSIS ON CREDIT RISK OF BANK IN INVESTIGATION STAGE WITH ASYMMETRIC INFORMATION - US SUB-PRIME CRISIS: IMPLICATIONS FOR BANKS' INVESTIGATION STAGE

Information asymmetry is the reason for the risks of adverse selection in banks' investigation stage. This paper establishes a gambling model to analysis the risk of adverse selection, pointing out that banks in investigation stage can not use the probability of review raised as a solution to asymmetric information. The banks can get more information to improve the efficiency of the review, but the existing mortgage loans did not improve efficiency. Only setting up a system to enhance the information exchange can prevent the risk of adverse selection effectively. Ignoring the investigation and over-emphasising on loan collateral are the reasons for US sub-prime crisis, which is a warning to the loan security of China's bank.