What problem occurs when FDIC-insured banks make riskier loans than they would if they did not have deposit insurance?
A)lower rate of returns
B)moral hazard
C)negative cash flows
D)resource allocation

Question

Quizplus · Accepted Answer

FDIC-insured banks face less risk since their deposits are insured. As a result, they may take on riskier loans that they would not have made without the insurance, leading to moral hazard.

What Problem Occurs When FDIC-Insured Banks Make Riskier Loans Than