Because deposits are insured by the FDIC, most of us do NOT look at the lending behavior of our banks. This creates a(n) ________ problem.

Question

Quizplus · Accepted Answer

The problem described in the statement fits the definition of a moral hazard, which is a situation where one party is insulated from risk and can therefore behave with less caution or restraint than they otherwise would. In this case, the fact that deposits are insured by the FDIC removes some of the risk for depositors, which can lead them to overlook or ignore the lending practices of their banks. This can create a situation where banks have less incentive to act responsibly with the funds entrusted to them.

Because Deposits Are Insured by the FDIC, Most of Us