The large number of bank failures in the 1980s compared to the number of failures in earlier decades appears to be evidence __________ the existence of __________ problem in deposit insurance.

Question

Quizplus · Accepted Answer

The large number of bank failures in the 1980s indicates that deposit insurance created a moral hazard problem, whereby insured banks took on greater risks knowing that the government would ultimately bear the cost of their failures. This led to a higher incidence of bank failures than in earlier decades when such deposit insurance was not available.

The Large Number of Bank Failures in the 1980s Compared