Which of the following is not a historical problem with deposit insurance?
A)Deposit insurance is a substitute for some functions of bank capital.
B)Some banks are considered Too-Big-To-Fail.
C)Historically, deposit insurance premium levels have been insufficient to cover potential payouts.
D)Historically, deposit insurance premiums were not assessed against all of a bank's insured liabilities.
E)All of the above are historical problems with deposit insurance.

Question

Quizplus · Accepted Answer

All of the given options are historical problems with deposit insurance. Deposit insurance being a substitute for bank capital creates moral hazard and encourages risk-taking behavior, Too-Big-To-Fail banks receive implicit subsidies and can take more significant risks, insufficient premium levels lead to insufficient funds to cover potential payouts, and not assessing premiums against all insured liabilities leads to inadequate funds to cover losses.

Which of the Following Is Not a Historical Problem with Deposit