Nonprice competition for deposits has tended to distort the allocation of scarce resources in the banking sector.

Question

Quizplus · Accepted Answer

Nonprice competition for deposits, such as offering free gifts or higher interest rates, can attract deposits from customers who may not be the most creditworthy or profitable for the bank. This can lead to a misallocation of resources as banks prioritize obtaining deposits over making sound lending decisions.

Nonprice Competition for Deposits Has Tended to Distort the Allocation