1) If reserve requirements were set to 100%, there would be no moral hazard problem in the banking industry

1. If the reserve requirement was set to 100%, then the banks have to keep of deposit as a reserve and therefore, they can't invest the money in the project with a higher risk. They also can't lend money to the people. With no risk-based investment, the economy will not face the problem of there being a moral hazard.

2. The United States Federal Reserve fluctuates money supply in the economy by changing reserve requirements. The Federal Reserve also monitors the amount that banks are lending. With zero reserve requirements, banks can lend any amount to the public and the Federal Reserve will lose control of the money supply.

3. When a bank suffers from the problem of bank run and is unable to pay their depositors, then the Federal Reserve provides a loan to the bank. This function of the Federal Reserve is known as the "lender of last resort." The Federal Reserve provide loan to the bank to maintain financial stability and to maintain the people trust on the bank. By doing so, the Federal Reserve adds to adverse selection problem in banking because now depositors can choose the same bank to deposit their money and therefore, this will lead the depositors to risky options.