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

Question

Quizplus · Accepted Answer

FDIC insurance can create moral hazard as it can lead individuals and institutions to take on higher levels of risk than they would otherwise take, knowing that the government will protect their deposits in the event of a bank failure. This can potentially lead to a higher rate of bank failures, as institutions engage in riskier behavior than they would without the safety net of insurance.

Which of the Following Is a Drawback of FDIC Insurance