Question

The restrictions of Glass-Steagall were eventually eliminated starting in the 1980's because Select one: A. moral hazard is no longer an issue in banking. B. banks wanted to earn the higher income associated with riskier assets in order to improve profits and survive an inflationary period. C. the banking system was stable for so long it became clear that there could never be any more problems with risk. D. safety net regulations already do a good job of reducing moral hazard

Answer 1

( The Act seperated commercial banking services from investment banking and created Federal deposit Insurance Corporation common among other things .lt was one of the most widely debated legislative initiatives before being signed into law by President Franklin D Roosevelt in 1933. When the act was enforced, Profit margins of commerical banks shrinked. Banks with no other option left, tried to seek Profit from lucrative loan securitization opportunities.They wanted to earn the higher income associated with riskier securities in order to escape the current losses.

Other options are incorrect

* The issue of moral hazard still persists in banking industry.

*The act made banking industry riskier rather than safer.

* Safety nets couldn't handle the issue of moral hazard completely.)