During the 1990s, some Western banks were far too willing to lend large amounts to companies that were already overleveraged. The banks knew the government would save them if these loans were foreclosed. What type of activity does this represent?

Question

Quizplus · Accepted Answer

This situation represents a moral hazard, where banks take on excessive risk because they believe they will be bailed out by the government if things go wrong.

During the 1990s, Some Western Banks Were Far Too Willing