Depositors do not check their banks carefully for stability anymore, because of the Federal deposit insurance program. This illustrates the problem of

Question

Quizplus · Accepted Answer

Moral hazard occurs when people take on more risks because they are protected from some or all of the consequences of their actions. In this case, depositors do not carefully check the stability of their banks because they know that they are protected by the Federal deposit insurance program. This program creates a moral hazard by encouraging depositors to take on more risk without fully considering the consequences.

Depositors Do Not Check Their Banks Carefully for Stability Anymore