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To maintain confidence in the banking system, many countries have introduced deposit insurance. However, a serious consideration in deposit insurance that can make the insurance contract riskier is the so-called moral hazard problem. Which of the following actions is most likely causing the moral hazard problem in the deposit insurance scenario?
A
Enforcing strict limitations on borrowing.
B
Setting the risk-based deposit insurance premium.
C
Implement regulatory measures that ensure banks maintain sufficient capital reserves in proportion to the risks they undertake.
D
Providing a certain amount of protection to a depositor against losses arising from a potential bank failure.