What is the relationship between deposit insurance and bank discipline in making investments?
What will be an ideal response?
Consumers desire sufficiently high insurance coverage on their deposits because they know the federal government guarantees their money in case the bank should fail. When their money is fully guaranteed, consumers have little interest in monitoring their bank’s lending and investment policies. On the other hand, banks may exercise little in the way of lending discipline by pursuing riskier loans and investments than otherwise would be the case if deposit insurance were much lower. High deposit insurance played a role in the U.S. banking crisis in the 1980s. For this reason, Federal Reserve officials are presently against increasing deposit insurance either by raising the levels or by indexing the maximum insurance coverage to inflation.
You might also like to view...
Along a curved line, the slope at the maximum
A) is greater than zero. B) is zero. C) is less than zero. D) may be greater than, less than, or equal to zero.
In the specific factors model, a 5% increase in the price of food accompanied by a 5% increase in the price of cloth will cause ________ in the welfare of labor, ________ in the welfare of the fixed factor in the production of food, and ________ in
the welfare of the fixed factor in the production of cloth. A) no change; no change; no change B) an increase; an increase; an increase C) a decrease; an increase; an increase D) an increase; a decrease; a decrease E) a decrease; a decrease; a decrease
What are the factors that determine a buyer's purchasing decision?
What will be an ideal response?
When summer hurricanes pass through the Gulf of Mexico and force oil drillers to evacuate their rigs,
A) the supply of oil increases, which therefore increases price. B) the supply of oil increases, which therefore decreases price. C) the supply of oil decreases, which therefore increases price. D) the supply of oil decreases, which therefore decreases price.