Savers have less incentive to care what their bank is doing with their money because their deposits are federally insured.This is a problem of

Question

Quizplus · Accepted Answer

Moral hazard refers to the tendency of people to take more risks or act less responsibly when they are protected from the negative consequences of their actions. In the context of banking, federal deposit insurance can create a moral hazard problem because depositors may be less vigilant about monitoring their bank's behavior and safety, knowing that the government will step in to protect their deposits if the bank fails. This can lead to banks taking on excessive risk or engaging in other behavior that is not in the best interest of their depositors.

Savers Have Less Incentive to Care What Their Bank Is