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The Informational Advantage- What do you Know that Other People Don't

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(Investment opportunities also arise when people with good knowledge fail to act rationally on what they know. This happens during panics and manias. Buyers and sellers know better, but their emotions drive them to set the wrong price.)

The key is recognizing where you hold the informational advantage.

As Deputy Governor Nishimura points out, banks' "fountain of knowledge" is the relationships they hold with their customers. Banks (by definition) hold detailed financial records about the people they deal with. Studying this, it's possible for a bank to make better judgments than an outsider about who is likely to pay back a loan and who is likely to go deadbeat.

This means banks have a leg up on everyone else in the loans business. Do they have a similar "insider view" of the stock market, where many of them have been increasingly investing over the last several years?

Maybe in specialized cases, but there's nothing inherent to the operations of most banks that would give them more information about stocks. They know just as much (or less) than investment funds, brokers and even individual investors.

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I have an interest in the financial markets, commodities and Geopolitics.
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