Question 76 What is a significant potential problem with providing bank deposit insurances O a. Higher costs to individual savers O b. Moral hazard O c. Greater risk of bank runs d. Higher risk to the insurance sector

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A:

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Regulation of Commercial Banks

The main function of any commercial bank is accepting deposits and lending money to borrowers. Apart from these two activities, commercial banks provide a host of other services to their customers, like discounting bills of exchange, acting as a custodian of a customer's will, and so on. In the absence of a proper regulatory framework or proper regulations in place, the commercial banks would have ended up charging exorbitant or varied rates of interest or service charges on the funds loaned by them or the services performed by them.