Greater role assumed by government in bailing out financial intermediaries – too big to fail concepts and its effect on adverse section and moral hazard.

One goal of the regulatory reforms that followed the 2007-2009 financial crisis was to address the “too big to fail” problem associated with large institutions. How did the reforms try to address this problem? Why might they not be sufficient?

When close to the zone of insolvency, managers have an incentive to gamble. This is known as    Question  options:   a)  an agency cost of debt that covenants cannot attenuate   b)  an agency cost of equity known as fraudulent conveyance    c)  an agency cost of debt that negative covenants can attenuate   d)  an agency cost of debt that positive covenants can attenuate

Thoroughly discuss why the asymmetric information is an obstacle to the direct finance? Give examples of moral hazard and adverse selection problems and possible solutions.