Why the majority of banks developed aggressive strategies

Assignment Help Macroeconomics

Reference no: EM133300852

Question: Banks generate income by selling financial products to customers. Following deregulation in the 1990s, banks developed one of two sales strategies. They were either passive (selling safe products with a low expected return to customers at a low price), or aggressive (selling risky products with a high expected return to customers at a high price). In order to explain the financial crisis, it has been suggested that customers did not understand the risks involve in each product. Instead, they always bought the product with the highest expected return. Set up a game with two banks competing for the same customer. Use your model to explain why the majority of banks developed aggressive strategies, and suggest a policy to reduce the risk that banks take.

Reference no: EM133300852

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