If the government did not offer the too-big-to-fail safety net:
A) large banks would be more disciplined by the potential loss of large corporate accounts.
B) the moral hazard problem of insuring large banks would increase.
C) the moral hazard problem of insuring large banks would not be affected.
D) the FDIC deposit insurance limits would have to be raised.

Question

Quizplus · Accepted Answer

Without the too-big-to-fail safety net, large banks would be more disciplined by the potential loss of large corporate accounts since smaller banks would be incentivized to compete for those accounts. This would likely lead large banks to operate with less risk and be more cautious in their decision-making processes.

If the Government Did Not Offer the Too-Big-To-Fail Safety Net