As information technology improves, the lending role of banks should:

Question

BlackTom AI · Accepted Answer

Improved information technology reduces information asymmetry between borrowers and lenders by making credit histories, business performance, and market data more widely and cheaply available.

1. Relevant knowledge points and concepts
- Information asymmetry: lenders traditionally add value by screening borrowers and monitoring loans because borrowers know more about their projects than lenders do.
- Transaction and monitoring costs: banks incur costs to collect, verify, and monitor borrower information.
- Disintermediation and fintech: technology enables platforms (peer-to-peer lending, marketplace lenders, automated underwriting) to match savers and borrowers directly and to automate screening.
- Comparative advantage shift: as information becomes cheaper and analytics improve, the unique intermediation role of banks is eroded.

2. Step-by-step reasoning
- Step 1: With better IT, lenders (including nonbank platforms) can access credit-relevant data (credit bureaus, accounting feeds, real-time transaction data).
- Step 2: Automated credit-scoring and machine learning lower the marginal cost of screening and monitoring.
- Step 3: Lower screening/monitoring costs enable disintermediation: borrowers can obtain funds directly from investors or online lenders without traditional bank intermediation.
- Step 4: Therefore the relative lending role of banks—measured as their share of total lending/intermediation—declines.

3. Calculations
- No numeric calculation is required; the argument is qualitative and based on cost and information effects.

4. Why the correct answer is correct
- Because IT reduces the information and transaction frictions that justified banks’ dominant lending role, other institutions and automated platforms can take over lending functions, reducing banks’ share.

5. Why the other choices are incorrect
- a. increase significantly: contradicts the disintermediation effect; IT lowers, not raises, banks’ unique advantage.
- b. increase somewhat: still inconsistent with reduced screening/monitoring needs and competition from fintech.
- c. stay the same: ignores dynamic structural change; improved IT alters incentives and cost structures, so a decline is expected.

6. Conclusion
- Improved IT leads to lower information and transaction costs and greater disintermediation, so the lending role of banks should decrease. This matches the provided answer: d. decrease.

As information technology improves, the lending role of banks should:Single choice

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