Answer:
All the options are correct
A. reduces the incentives of depositors to monitor the riskiness of their banks' asset portfolios.
B. encourages bank managers to take on greater risks than they otherwise would
C. attracts risk-prone entrepreneurs to the banking industry
Explanation:
Deposit insurance is when the insured banks depositors are protected from the possibility of loss that can arise when a bank isn't able to meet its obligations.
If a bank fails, the body providing deposit insurance pays depositors back their money in full or in part.
The Federal Deposit Insurance Corporation is one the bodies that provide deposit insurance in the U.S.
Deposit insurance can increase moral hazard. It encourages bank managers to take on greater risks than they otherwise would.
Deposit insurance can also increase adverse selection. More risk-prone entrepreneurs enter into the banking industry.
Deposit insurance can also reduces the incentives of depositors to monitor the riskiness of their banks' asset portfolios because they know that even if the bank fails, their deposits are protected.
I hope my answer helps you.
