Which of the following is incorrect.
A) the moral hazard problem refers to the incentive for bank managers to take excessive risk
B) market discipline refers to pressure on banks by depositors and other investors to limit risk taking
C) regulatory discipline refers to pressure on banks by regulators through risk based deposit insurance and other constraints to reduce bank risk taking
D) all of the above are correct.

Question

Quizplus · Accepted Answer

All the statements provided are correct in the context of banking and finance. A) correctly defines the moral hazard problem as it relates to bank managers' incentives for excessive risk-taking. B) accurately describes market discipline as the pressure exerted by depositors and investors to limit risk-taking by banks. C) properly explains regulatory discipline as the pressure applied by regulators through mechanisms like risk-based deposit insurance to mitigate bank risk-taking.

Which of the Following Is Incorrect