The phenomenon of information asymmetry means that one of the two parties in a transaction can only obtain incomplete information. Information asymmetry widely exists in the market economy. Information asymmetry reduces traders' confidence and increases transaction costs, which has a destructive effect on the entire market, with defective products driving out high-quality products.

Interpretation of information asymmetry theory in the field of bank lending

Information asymmetry in bank lending refers to the borrower’s understanding of its own relevant information, including risk status. Definitely know more than the lender, thus influencing the lender to make accurate decisions. Modern information economics believes that the existence of information asymmetry has led to "adverse selection" and "moral hazard" problems.

Adverse selection refers to the information asymmetry problem that occurs before loan issuance. The risk of potential bad loans often comes from those who are actively looking for loans. In order to compensate for loan risks and losses, banks often charge a certain "risk" interest rate when pricing loans. Therefore, at a higher interest rate level, the number of high-risk borrowers increases, while the number of low-risk borrowers decreases, thereby increasing the risk of total loan assets. In addition, because adverse selection increases the likelihood that a loan will become a non-performing loan, the lender may not grant the loan even if there are lower-risk loan opportunities in the market.

Moral hazard occurs after a loan transaction occurs. After a lender issues a loan, it will face the borrower engaging in activities that the lender does not expect from the lender's perspective. For example, borrowers tend to invest this loan in high-risk projects with high default rates, or borrowers know that their financial situation is deteriorating and they will not be able to repay the loan in the future, but they still use the unused loan limit.

Information asymmetry leads to an increase in borrowing costs, an increase in bank asset risks, and a decrease in the operating efficiency of financial markets. Credit card loans are a typical unsecured revolving credit loan. There is information asymmetry between the card-issuing bank and the applicant (cardholder), as well as between the regulatory agency and the operating agency. How to solve the problem of information asymmetry is closely related. The overall picture of the success or failure of the development of the credit card industry.