Which of the following is an example of how incentive structures contributed to the collapse of investment banks?
A) The bonus structures of most executives were tied to short-term profitability.
B) The rating agencies acted independently in assigning ratings to mortgage-backed securities and had no incentive to understate the risks.
C) Mortgage-backed securities were closely scrutinized in order to minimize risk and obtain higher ratings.
D) Despite SEC regulations, investment banks kept leverage ratios low in order to increase profits.

Question

Quizplus · Accepted Answer

The bonus structures tied to short-term profitability encouraged executives to take excessive risks to boost short-term gains, contributing to the collapse.

Which of the Following Is an Example of How Incentive