the moral hazard problem is minimized when deposit insurance premiums are course hero

As a result, bank insurance premiums are now in alignment with the risk of banks and this lowers down the moral hazard problem. Verified Answer When the deposit insurance helps in preventing bank deposit runs, they encourage banks to incorporate higher risk. As a result, the risky banks are subsidized by the conservative banks.

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What did the Deposit Insurance Act of 1933 do?

ended the system of risk-based insurance premiums. set requirements for the Deposit Insurance Fund's reserves. raised the limit for insured deposits to $750,000 per depositor. allowed large insurance companies such as American International Group to compete with the FDIC to insure bank deposits.

What did the Depository Institutions Deregulation and Monetary Control Act of 1980 allow?

The Depository Institutions Deregulation and Monetary Control Act of 1980 allowed banks to set their own reserve requirements. capital ratios. interest rates on savings deposits. corporate loan interest rates. The Glass-Steagall Act of 1933 prevented any firm that accepts deposits from underwriting stocks and bonds of corporations.

What is the difference between always and deposit insurance?

always requires a charter from the federal government. requires a charter from a state or the federal government. requires a charter from both the state and federal government. Nice work! You just studied 51 terms! Now up your study game with Learn mode. Deposit insurance has a limit of: $10,000. $25,000. $100,000. $250,000.

What act prevented the deposit of bonds?

The Glass-Steagall Act of 1933 prevented. any firm that accepts deposits from underwriting stocks and bonds of corporations. any firm that accepts deposits from underwriting general obligation bonds of states and municipalities. any firm that accepts deposits from holding any corporate bonds in its asset portfolio.

Why lower capital requirements for banks?

lower capital requirements for banks to enable them to generate higher earnings to make up for their losses during the credit crisis. relying on the rating agencies to assess the risk of bank assets. increased capital requirements and liquidity requirements for banks. using the gap ratio to set the capital ratio.

Why do banks have to hold higher levels of capital?

Shareholders and managers of banks may prefer that banks be required to hold higher levels of capital because this would allow for higher share prices for the banks and larger bonuses for bank managers.

What is sensitivity in banking?

a bank's sensitivity to financial market conditions. the type of loans that a bank provides, the bank's process for deciding whether to provide loans, and the credit rating of debt securities that it purchases. whether a bank frequently needs to borrow from outside sources, such as the discount window. e.