19-17 If regulators provide more protection against bank runs,the incidence of moral hazard is likely to increase.

Question

Quizplus · Accepted Answer

When regulators provide more protection against bank runs, depositors are less likely to withdraw their funds early, which reduces the likelihood of a bank run. However, this may also make banks less cautious in their lending and investment practices as they know that the likelihood of a bank run is low. This creates a moral hazard problem where banks can take on more risk without fear of consequences, which increases the likelihood of financial instability. Therefore, more protection against bank runs can increase the incidence of moral hazard.

19-17 If Regulators Provide More Protection Against Bank Runs,the Incidence