On the one hand, the Federal Deposit Insurance Reform Act of 2005 expanded the? adverse selection or moral hazard.risks associated with deposit insurance by increasing limits for insured retirement deposits and indexing limits for other deposits to inflation. On the other hand, the law granted the FDIC greater discretion to assess risk-based deposit insurance? premiums or subsidies. intended to restrain? moral hazard or adverse selection On the one hand, the Federal Deposit Insurance Reform Act of 2005 expanded the adverse selection risks associated with deposit insurance by increasing limits for insured retirement deposits and indexing limits for other deposits to inflation. On the other hand, the law granted the FDIC greater discretion to assess risk-based deposit insurance premiums intended to restrain moral hazard risks.

In the United States, the Federal Deposit Insurance Reform Act of 2005 has the primary aim to protect public or depositors from bank failure when banks become bankrupts and unable to payback deposits.This act increases the chances of adverse selection as people will provide lesser information to the banks by applied for insurance to get benefit from this act. At the same time, this law granted FDIC to assess the risk and charge higher premium to deal with the moral hazard risk.

Answered: On the one hand, the Federal Deposit…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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On the one hand, the Federal Deposit Insurance Reform Act of 2005 expanded the? adverse selection or moral hazard.

risks associated with deposit insurance by increasing limits for insured retirement deposits and indexing limits for other deposits to inflation. On the other hand, the law granted the FDIC greater discretion to assess risk-based deposit insurance? premiums or subsidies. intended to restrain? moral hazard or adverse selection

On the one hand, the Federal Deposit Insurance Reform Act of 2005 expanded the adverse selection risks associated with deposit insurance by increasing limits for insured retirement deposits and indexing limits for other deposits to inflation. On the other hand, the law granted the FDIC greater discretion to assess risk-based deposit insurance premiums intended to restrain moral hazard risks.

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