Mildly Careless Banks

Banks run credit checks on loan applicants. What if your bank had a reputation for being slightly less thorough than other area banks? Applicants who had the most to hide would be the most attracted to your bank. You would thus attract the customers you least wanted to lend to. Most banks strive to overcome adverse selection by gathering information about loan applicants. If your bank did not diligently seek out this information, adverse selection would increase your default rates.