The "too big to fail" doctrine, which became widely discussed during the Great Recession, refers to: Question 53Answer a. The idea that only large corporations can effectively manage financial risks b. Large companies that can never go bankrupt c. The belief that certain financial institutions are so large that their failure would be catastrophic to the economy d. Government policy to prevent monopolies in critical industries
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If a bank is "too big to fail" that creates a situation known as "moral hazard". Moral hazard in this context implies A. that banking CEO's and financiers don't represent the interests of their deposits and make decisions to benefit themselves rather than the people whose money they manage B. that banking isn't competitive, which allows bankers to charge monopoly price for home loans C. that large banks know they will always get a bailout because they are too important to let fail, so the taxpayer bears much of the burden of risk if the banks are in financial trouble D. all of these are factors associated with "moral hazard" and the behavior of large banks
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explain the importance of too big to fail problem?
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Which of the following is correct? A) It is difficult to spot a financial crisis before it happens, because each crisis is different. B) Banks would do better to rely more on their risk management models to avoid future crises. C) Both of the above. D) None of the above.
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