The "too big to fail" policy of the Fed, whereby some banks are bailed out if they are in danger of failing because they are too big and could bring the system down, leads to which of the following problems?
A)adverse selection
B)externalities
C)moral hazard
D)public goods

Question

Quizplus · Accepted Answer

The "too big to fail" policy can lead to moral hazard, where banks might take on riskier investments knowing they are likely to be bailed out if those investments go south, due to their importance to the financial system.

The "Too Big to Fail" Policy of the Fed, Whereby