A key obstacle facing regulators who want to prevent financial institutions from taking excessive risks is the difficulty in:
A) finding diversified pools of assets to reduce risk.
B) drawing the line between excessive and appropriate risk taking.
C) eliminating idiosyncratic risk through diversification.
D) distinguishing between equity and debt financing.

Question

Quizplus · Accepted Answer

Determining the appropriate level of risk for a financial institution is subjective and can vary depending on the institution's business model, industry sector, and risk management capabilities. Therefore, regulators may find it challenging to identify and prevent excessive risk-taking without impeding the industry's ability to innovate and grow.

A Key Obstacle Facing Regulators Who Want to Prevent Financial