Which of the following is likely to be more of a problem after the introduction of deposit insurance?

Question

Quizplus · Accepted Answer

The introduction of deposit insurance can lead to moral hazard as it may decrease depositors' incentives to monitor and regulate banks' behavior as they are insured against any losses. This may lead to an increase in risky behavior of banks, knowing that their depositors are protected by insurance. As a result, it may lead to more frequent and severe financial crises. Adverse selection, contagion, and bank runs may also be problems, but they are less likely to be significant than moral hazard.

Which of the Following Is Likely to Be More of a Problem