Moral Hazard Can Contribute to High Bank Leverage in All

question 6

Multiple Choice

Moral hazard can contribute to high bank leverage in all of the following ways EXCEPT

• A) having high capital requirements.
• B) bank managers are compensated in part on providing shareholders with high returns on equity.
• C) high bank leverage provides shareholders with a potential for a higher return on equity.
• D) federal deposit insurance has reduced the incentive of depositors to monitor the behavior of bank managers.

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Definitions:

Light Bulbs

Devices that produce light through electrical energy, often used for illumination purposes in homes and businesses.

Recognize

To identify someone or something seen, heard, or experienced before, acknowledging their existence or validity.

Moving Model

A theoretical framework or representation that captures or predicts the dynamics and changes of a system or process over time.

Gibson's Theory

Gibson's Theory, by psychologist James Gibson, suggests that perception is a direct process that does not involve processing information or mental constructions.