While deposit insurance was designed to make the banking industry more stable,it contributed to the banking crisis of the 1980s because
A)the FDIC only insured commercial banks
B)the ceiling on insured deposits was too low
C)too many banks were not sufficiently insured
D)depositors became too complacent about the risks that banks were taking
E)unsafe banks were "kicked out" of the deposit insurance system

Question

Quizplus · Accepted Answer

Deposit insurance made depositors complacent about the risks their banks were taking, leading to a moral hazard problem. Banks took on more risks knowing that they were insured, which contributed to the banking crisis of the 1980s.

While Deposit Insurance Was Designed to Make the Banking Industry