Question at position 1 Although the FDIC was created to prevent bank failures, its existence encourages banks tohold too much capitaltake too much riskhold too many depositsopen too many branches单项选择题
A
hold too much capital
B
take too much risk
C
hold too many deposits
D
open too many branches

Question

Question at position 1 Although the FDIC was created to prevent bank failures, its existence encourages banks tohold too much capitaltake too much riskhold too many depositsopen too many branches

BlackTom AI · Accepted Answer

Deposit insurance (FDIC) creates a moral hazard: when depositors know their funds are protected, they are less likely to monitor bank behavior, which reduces market discipline and allows banks to increase risk-taking.

1. Relevant knowledge points and concepts
- Purpose of FDIC: protect depositors and maintain confidence in the banking system.
- Moral hazard: protection against loss changes incentives, encouraging riskier behavior by the protected party.
- Market discipline: uninsured depositors and creditors monitor banks and withdraw funds if a bank acts riskily; insurance weakens that discipline.
- Capital and regulation: regulators attempt to offset moral hazard with capital requirements and supervision, but incentives remain.

2. Step-by-step reasoning
Step 1: FDIC guarantees deposits up to a limit, so depositors face less downside from bank failure.
Step 2: With less risk of withdrawal, banks face weaker short-term market pressure to avoid risky investments.
Step 3: Bank managers, who may benefit from upside (fees, returns) while losses can be absorbed by deposit insurance, have an incentive to favor higher-return, higher-risk assets.
Step 4: Increased risk-taking raises the probability of failure, which is precisely the moral hazard the FDIC seeks to mitigate.

3. Calculations
- No numerical calculations are required; the reasoning is incentive-based.

4. Why the correct answer is correct
The option "take too much risk" directly describes the moral hazard consequence of deposit insurance: insured banks are incentivized to pursue riskier strategies because depositors no longer discipline them.

5. Why other options are incorrect
- "Hold too much capital": deposit insurance tends to reduce banks’ incentive to hold extra capital; if anything, they'd hold less, not more.
- "Hold too many deposits": deposit insurance may increase deposits, but it does not “encourage banks to hold” deposits as a problematic behavior; deposits are a funding source, not a risky action encouraged by insurance.
- "Open too many branches": branch expansion is a business decision not directly driven by deposit insurance and is unrelated to the moral-hazard effect.

Conclusion: The FDIC’s insurance creates moral hazard that encourages banks to take too much risk, matching the provided correct answer "take too much risk."

Question at position 1 Although the FDIC was created to prevent bank failures, its existence encourages banks tohold too much capitaltake too much riskhold too many depositsopen too many branches单项选择题

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