Question content area
Part 1
Suppose a country has weak institutions, prevalent corruption, and an ineffectively regulated financial sector.
Part 2
Would you recommend the adoption of a system of deposit insurance, like the FDIC in the United States, for this country?
Part 3
Based on the information given above, which of the following is likely to be a reason for not recommending the adoption of a system of deposit insurance for this country?
A.
It might increase the economy's dependency on big financial institutions.
B.
It might increase the problem of adverse selection of potential customers by banks.
C.
It might increase the moral hazard incentives for banks to engage in risky lending.