Bank risk taking can be controlled by increasing

Question

Quizplus · Accepted Answer

By setting risk-adjusted deposit insurance premiums, banks are encouraged to take less risk as they will have to bear the cost of higher premiums for higher risk-taking. This promotes stockholder discipline as shareholders, who ultimately bear the cost of premiums, will pressure the bank's management to take less risk. Increasing the budgets of regulatory agencies may help improve supervision but may not necessarily control risk-taking as it does not incentivize shareholders or depositors to monitor and discourage risky behavior. Increasing the ceiling for deposit insurance coverage may actually encourage more risk-taking as it provides a safety net for the bank's liabilities. Charging stockholders a surcharge may also have limited effectiveness as it does not differentiate risk levels and may not incentivize risk control.

Bank Risk Taking Can Be Controlled by Increasing