Question

Increased size of financial institutions resulting from financial consolidation increases the ________ problem, because there are now more large institutions whose failure would expose the financial system to systemic risk.

Answer 1

Answer:Increased size of financial institutions resulting from financial consolidation increases the to big to fail problem,

Explanation:

First challenge which the financial consolidation poses is that when the financial institutions size increases it brings the to big to fail problem. The systematic risk exposure increases as it has more large institutions in the financial system.

The other challenge here includes that is when the financial consolidation takes place between the banks and other financial service firms then the government safety net covers the new activities undertaken. Which can be securities underwriting, real estate or insurance activities. This is provided as an incentive for taking huge risks.