The behavior of many savings-and-loans in the 1980s appears to be evidence __________ the existence of __________ problem in deposit insurance.

Question

Quizplus · Accepted Answer

The behavior of savings-and-loans in the 1980s, such as taking excessive risks and making high-risk investments, supports the existence of a moral hazard problem in deposit insurance. Moral hazard is the tendency of individuals or institutions to take on greater risks knowing that they are protected by insurance. In this case, the insurance was the deposit insurance provided by the government, which incentivized savings-and-loans to engage in risky behavior without fear of losses because they knew they would be bailed out.

The Behavior of Many Savings-And-Loans in the 1980s Appears to Be