Which of the following is a drawback of FDIC insurance?
A)FDIC insurance leads to excess industry profits.
B)FDIC insurance has failed to arrest the trend of bank failures.
C)FDIC insurance leads to the problem of moral hazard.
D)FDIC insurance undercuts private insurance companies.

Question

Quizplus · Accepted Answer

FDIC insurance can lead to moral hazard, where banks and their customers engage in riskier behavior because they know deposits are insured, thus reducing the incentive to act prudently.

Which of the Following Is a Drawback of FDIC Insurance