If these investors collectively invested through a

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If these investors collectively invested through a bank, the total investment capital is 100 * $1000 = $100,000 and the cost of information is still $10. Now, this cost is equally shared among 100 investors, so the cost per investor is only $.1.Therefore, the existence of economies of scale in banks increases net effective investment capital.Secondly, since the information obtained and produced by banks is only relevant to banks and is not of significance to anyone else, the incentive to free ride bank's information is non-existent as opposed to markets, where individuals wishing to free ride simply watch the decisions of other investors who have actually purchased information.Thirdly, since banks have economies of scale, scope, past lending & returns data, that helps them to exploit sophisticated business valuation & scoring models and risk management systems which are often not feasible in the case of individual investors.Therefore, the problem of information asymmetry with individual investors is reduced due to sophistications aided by economies of scale.
Furthermore, huge fixed costs of investing in these sophistications are shared by multiple individuals and therefore cost per individual is low.Fourthly, banks have access to day to day business transactions through the business's bank account and the cost of monitoring is effectively free of cost and makes the process of valuation even easier. Such free of cost monitoring opportunities are clearly not open to individual investorsMoreover, even if the bank has borrowed from multiple banks or has accounts with multiple banks, it is always possible to form a consortium of banks depending on the scale of borrowing by that specific borrower.On the other hand, it is not very feasible for independent investors to form similar consortiums. Once again, direct access to day to day business transactions helps reduce information asymmetry.

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