Question

Question 69 During the S&L Crisis of the 1980s Not yet answered Select one: Points out of 1 O A. The existence of deposit insurance increased moral hazard Remove flag O B. Regardless of how much risk the thrifts were taking, deposit insurance guaranteed that depositors would not suffer any losses O C. Deposit insurance was increased from $40,000 per account to $100,000 by DIDMCA of 1980 D. All of the above are correct OE. Only A and B are correct

Answer 1

The root cause of the S&L crisis was Federal deposit insurance which was extended to S&Ls in 1934. This insurance was flawed right from its inception because all S&Ls were charged the same Insurance premium rate regardless of how safe or risky they were. This increased the issue of moral hazard.

Also one significant feature of DIDMCA OF 1980 signed into law by President Jimmy Carter was the increase in federal deposit insurance to $100,000 from $40,000 per depositor.

Correct Ans - D