The chartering process is especially designed to deal with the ________ problem,and restrictions on asset holdings help to reduce the ________ problem.

Question

Quizplus · Accepted Answer

The chartering process helps in screening and selecting among potential bank owners, which addresses the adverse selection problem by ensuring that only those with sound business models and intentions can start a bank. Restrictions on asset holdings are designed to prevent banks from taking excessive risks once they are operational, thus addressing the moral hazard problem.

The Chartering Process Is Especially Designed to Deal with the ________