Answer-first summary for fast verification
Answer: Deposit insurers charge risk-based premiums.
**Risk-based deposit insurance premiums** are designed to address moral hazard by making banks pay higher premiums when they engage in riskier activities. This creates an incentive for banks to manage their risk more prudently. **Why other options are incorrect:** - **B**: Increasing loans to higher-risk borrowers would actually increase moral hazard - **C**: Deposit insurance programs themselves can create moral hazard by reducing depositor monitoring - **D**: Higher interest rates to depositors don't directly address moral hazard concerns
Author: LeetQuiz Editorial Team
Ultimate access to all questions.
Which of the following actions in the banking system is most likely intended to address the problem of moral hazard?
A
Deposit insurers charge risk-based premiums.
B
Banks increase loans to higher-risk borrowers.
C
Governments implement deposit insurance programs.
D
Banks increase the interest rates they offer to depositors.
No comments yet.