One problem with government insurance that must be faced is how to avoid distorting risk-taking decisions by the managers of privately owned financial institutions.

Question

Quizplus · Accepted Answer

Government insurance can lead to moral hazard, where the managers of privately owned financial institutions might take on riskier investments or decisions, knowing that losses will be covered by the government. This can distort risk-taking decisions and lead to inefficiencies in the financial market.

One Problem with Government Insurance That Must Be Faced Is