One proposal for discouraging excessive risk-taking is to require "skin in the game," which means that the financial institution must:
A)be large enough to qualify for "too big to fail treatment."
B)have sufficient collateral to receive loans from the Fed.
C)hold some of the risky transactions themselves.
D)be subject to Federal Reserve regulations.

Question

Quizplus · Accepted Answer

Requiring financial institutions to hold some of the risky transactions themselves, rather than just passing them on to other investors or institutions, can create a stronger incentive for them to carefully consider the risks involved. This can discourage excessive risk-taking and improve the stability of the financial system. Options A, B, and D do not directly address the issue of risk-taking.

One Proposal for Discouraging Excessive Risk-Taking Is to Require "Skin