Regulators in deciding whether to close a large failing institution
Have to consider which of the following:

Question

Quizplus · Accepted Answer

Regulators have to consider both the moral hazard risk and safety and soundness considerations in deciding whether to close a large failing institution. The moral hazard risk exists because large financial institutions may take on excessive risks, knowing that they will be bailed out if they fail. Safety and soundness considerations are important because the failure of a large financial institution may have contagion effects on other financial institutions and pose a systemic risk to the financial system. Therefore, both A and B are important considerations for regulators.

Regulators in Deciding Whether to Close a Large Failing Institution