Deposit Insurance Contracts Can Be Structured to Reduce Moral Hazard

question 32

Multiple Choice

Deposit insurance contracts can be structured to reduce moral hazard behavior by

• A)increasing depositor discipline.
• B)increasing stockholder discipline.
• C)increasing regulator discipline.
• D)reducing owner incentives to take risks.
• E)All of the options.

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Definitions:

Stockholders

Individuals or entities that own a share or shares of a corporation, thereby having a claim on its assets and earnings.

Marketability

The ease with which an asset can be sold quickly in the market without affecting its price significantly.

Solvency

A measure of a company's ability to meet its long-term financial obligations.

Horizontal Analysis

A financial statement analysis method that compares line items in a statement to those of previous periods to determine changes over time.