Sometimes banks tend to invest in risky stocks because the deposits of their customers are insured by the Federal Deposit Insurance Committee.This behavior is an example of ________.

Question

Quizplus · Accepted Answer

This behavior is an example of moral hazard, which is the tendency for a person or institution to take risks because they are protected from the negative consequences of those risks. In this case, the bank knows that even if their risky investments fail, their customers' deposits will still be insured by the FDIC, so they have less incentive to be cautious with their investment decisions.

Sometimes Banks Tend to Invest in Risky Stocks Because the Deposits