1. If commercial banks were allowed to purchase significant amounts of stock in the companies to which they make loans, would this increase or decrease the extent of moral hazard in the financial system? Briefly explain.
2. In 1960, federal regulations prohibited banks from paying interest on checking accounts. Today, banks are legally allowed to pay interest on checking accounts, yet the value of checking accounts has shrunk from more than 50% of commercial bank liabilities in 1960 to about 10%. Because checking accounts now pay interest, shouldn't they have become more popular with households rather than less popular?