Which of the following refers to a situation where a person or an organization is likely to have a tendency or a willingness to take a high-level risk, even if it’s economically unsound.
1). Systematic risk
2). Business risk
3). Capital risk
4). Moral hazard
Economists describe moral hazard as any situation in which one person makes the decision about how much risk to take, while someone else bears the costs if things go badly. “Too-big-to-fail” is nothing but moral hazard in a sense.
If banks high -level risk leads to higher profit - Bank Benefits
If banks high -level risk leads to bankruptcy - then it will be paid by government