One reason that financial regulations restrict the assets that banks can own is to:
A) combat the moral hazard that government safety nets provide.
B) limit the growth rate of banks.
C) prevent banks from being too profitable.
D) keep banks from spending lavishly on perks for executives.

Question

Quizplus · Accepted Answer

Financial regulations restrict the assets that banks can own to combat the moral hazard that government safety nets provide. Government safety nets, such as deposit insurance, can lead to banks taking on too much risk with the expectation that the government will bail them out if they fail. By limiting the assets that banks can own, regulators aim to reduce the likelihood of bank failures and the need for government bailouts.

One Reason That Financial Regulations Restrict the Assets That Banks