One justification for greater regulation of banks than of non-bank financial institutions is the:
A)lower amounts of capital and higher amounts of risky assets held at banks.
B)absence of economy-wide repercussions when non-banks fail.
C)more limited opportunities for excessive risk-taking by non-bank institutions.
D)existence of government insurance of bank deposits.

Question

Quizplus · Accepted Answer

Government insurance of bank deposits creates a moral hazard, as it may encourage banks to take on excessive risks, knowing that deposits are insured. This justifies greater regulation to mitigate such risks.

One Justification for Greater Regulation of Banks Than of Non-Bank