Answer: Looser credit standards in certain sectors.

The originate-to-distribute model, where banks originate loans and then sell them to investors rather than holding them on their balance sheets, created moral hazard. Since the originating bank doesn't bear the long-term credit risk, it has less incentive to maintain strict underwriting standards, leading to looser credit standards, particularly evident in the subprime mortgage crisis.

Author: LeetQuiz Editorial Team