Of the following methods that banks might use to reduce moral hazard problems,the one not legally permitted in the United States is the
A)requirement that firms keep compensating balances at the banks from which they obtain their loans.
B)requirement that firms place on their board of directors an officer from the bank.
C)inclusion of restrictive covenants in loan contracts.
D)requirement that individuals provide detailed credit histories to bank loan officers.

Question

Quizplus · Accepted Answer

The requirement that firms place on their board of directors an officer from the bank is not legally permitted in the United States due to concerns of conflict of interest and potential violation of antitrust laws. The other methods mentioned (A, C, and D) are commonly used by banks to reduce moral hazard problems.

Of the Following Methods That Banks Might Use to Reduce