During the early 1930s,the Fed was reluctant to rescue nonsolvent banks out of fear of encouraging

Question

Quizplus · Accepted Answer

The concept of moral hazard refers to the idea that if banks know that the Fed will rescue them regardless of their solvency, they may take on excessive risk in the future, knowing they will not suffer the consequences of their actions. The Fed was therefore reluctant to rescue nonsolvent banks during the early 1930s out of fear of encouraging such behavior.

During the Early 1930s,the Fed Was Reluctant to Rescue Nonsolvent