How did the fixed rate deposit insurance program of the FDIC contribute to the moral hazard problem of the depository institution industry?
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journal article An Evaluation of the Treasury Plan for Banking ReformThe Journal of Economic Perspectives Vol. 6, No. 1 (Winter, 1992) , pp. 133-153 (21 pages) Published By: American Economic Association https://www.jstor.org/stable/2138377 Read and download Log in through your school or library Alternate access options For independent researchers Read Online Read 100 articles/month free Subscribe to JPASS Unlimited reading + 10 downloads Purchase article $4.00 - Download now and later Journal Information The Journal of Economic Perspectives (JEP) attempts to fill a gap between the general interest press and most other academic economics journals. The journal aims to publish articles that will serve several goals: to synthesize and integrate lessons learned from active lines of economic research; to provide economic analysis of public policy issues; to encourage cross-fertilization of ideas among the fields of thinking; to offer readers an accessible source for state-of-the-art economic thinking; to suggest directions for future research; to provide insights and readings for classroom use; and to address issues relating to the economics profession. Articles appearing in the journal are normally solicited by the editors and associate editors. Proposals for topics and authors should be directed to the journal office. Publisher Information Once composed primarily of college and university professors in economics, the American Economic Association (AEA) now attracts 20,000+ members from academe, business, government, and consulting groups within diverse disciplines from multi-cultural backgrounds. All are professionals or graduate-level students dedicated to economics research and teaching. Rights & Usage This item is part of a JSTOR Collection. How can a deposit insurance system lead to moral hazard?10 In the context of deposit insurance, moral hazard refers to the incentive insured institutions have to use lower- cost insured deposits to undertake higher-risk projects or actions than would otherwise be optimal.
What impact did the FDIC have?The Federal Deposit Insurance Corporation (FDIC) is an independent agency that provides deposit insurance for bank accounts and other assets in the United States if financial institutions fail. The FDIC was created to help boost confidence in consumers about the health and well-being of the nation's financial system.
How did the FDIC help solve the banking crisis?The Banking Act established the FDIC. It also separated commercial and investment banking and for the first time extended federal oversight to all commercial banks. The FDIC would insure commercial bank deposits of $2,500 (later $5,000) with a pool of money collected from the banks.
How did the FDIC help solve one of the problems of the Great Depression?The success of the FDIC rests on preventing bank runs and peremptorily closing troubled banks before they infect others in the system. The chairmen of the FDIC during the New Deal era were Walter J. Cummings (1933-1934) and Leo T. Crowley (1934-1945).
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