Most regulatory constraints on bank behavior are designed either to reduce the risk of failure or to affect the price and allocation of bank credit.

Question

Quizplus · Accepted Answer

Regulatory constraints on bank behavior, such as capital requirements, liquidity requirements, and lending standards, are primarily designed to reduce the risk of bank failures by ensuring banks operate in a safe and sound manner. Additionally, some regulations aim to influence the price and allocation of bank credit to support policy goals, such as promoting lending to underserved sectors or managing economic cycles.

Most Regulatory Constraints on Bank Behavior Are Designed Either to Reduce