Asked by george brown on Jun 04, 2024
Verified
The fact that the U.S. government provides deposit insurance to banks creates a form of ________, which is at least partially offset by requiring banks to hold more capital if they are riskier.
A) moral hazard
B) adverse selection
C) risk aversion
D) interest rate risk
Deposit Insurance
Deposit Insurance is a protection scheme for bank depositors that guarantees the safety of deposits in member banks, up to a certain limit, in the event of a bank failure.
Moral Hazard
A situation in which one party is more likely to take risks because they do not have to bear the full consequences of their actions, often seen in insurance and finance.
Risk Aversion
A preference for lower risk investments, often reflecting an investor's reluctance to accept a high likelihood of losses.
- Understand the concept of moral hazard in the context of government insurance for banks.
Verified Answer
Learning Objectives
- Understand the concept of moral hazard in the context of government insurance for banks.
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