Describe the conflicts of interest that occur in banks in Europe.

Answer: Conflicts of interest are a type of moral hazard problem that arise when a person or institution has multiple objectives (interests) and, as a result, has conflicts among those objectives. Conflicts of interest are especially likely to occur when a financial institution provides multiple services. The potentially competing interests of those services may lead individuals who work for financial institutions to conceal information or disseminate misleading information. Here we use the analysis of asymmetric information problems to understand why conflicts of interest are important, why they arise, and what can be done about them. We care about conflicts of interest because a substantial reduction in the quality of information in financial markets increases asymmetric information problems and prevents financial markets from channeling funds into the most productive investment opportunities. Consequently, the financial markets and the economy become less efficient.