Which of the following are the reasons for having the government set capital standards for financial institutions as opposed to letting the private marketplace set those standards?
A)To preserve public confidence
B)To remove each bank's unique asset risk exposure
C)To limit losses to the federal government arising from deposit insurance claims
D)To preserve public confidence and to limit losses to the federal government arising from deposit insurance claims
E)None of the options is correct.

Question

Quizplus · Accepted Answer

The government sets capital standards for financial institutions to preserve public confidence in the financial system and limit losses to the federal government arising from deposit insurance claims. By setting minimum capital standards, the government aims to prevent banks from becoming insolvent and failing, which can lead to systemic risks that threaten the stability of the financial system. Additionally, by requiring banks to maintain a certain level of capital, the government can limit losses to the deposit insurance fund, which is ultimately funded by taxpayers. The private marketplace may not set such standards as it may prioritize maximizing profits over the stability of the financial system and protecting taxpayers.

Which of the Following Are the Reasons for Having the Government