Capital Requirements for Mega-Banks Treasury Secretary Janet Yellen has suggested in the past that that current regulatory rules might not be enough to prevent the kind of risk-taking that triggered the 2008 financial crisis and nearly toppled the entire banking system. She said the largest U.S. banks may need to hold additional capital to withstand periods of financial stress. Non-banks with deep reaches into the financial system might also need to meet tougher rules, she said. Such firms range from money market mutual funds to private equity and hedge funds. (i)Explain adverse selection in the context of bank lending. Use demand and supply curves in your answer. (ii) What is the economic rationale for imposing higher capital requirements on "Mega-Banks" but not smaller banks?