When the government bails out large banks when the banks become unstable, it could lead to a moral hazard problem.

Question

Quizplus · Accepted Answer

Bailing out large banks could encourage them to take on more risks in the future, knowing that the government will rescue them if they falter. This can create a moral hazard problem, where banks behave recklessly because they know they won't bear the full consequences of their actions.

When the Government Bails Out Large Banks When the Banks