(Solved):Explain carefully why a bank with FDIC insured depositors may have an incentive to take more risk than they would without such insurance. How may the too-big-to-fail policy practiced by regulators… View Answer…

 

Question

Explain carefully why a bank with FDIC insured depositors may have an incentive to take more risk than they would without such insurance. How may the too-big-to-fail policy practiced by regulators affect the incentive for banks to take risk? Explain.

 

EXPERT ANSWER

FDIC insured depositor institutions have more of an incentive to engage in risky behavior than non-guaranteed institutions. Banks make loans and charge interest on factors including the

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