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Mar 16, 2023 · On the one hand, prudential rules for banks are described by both central bank officials as a suitable means to reduce moral hazard (and hence as a suitable means to achieve financial stability); on the other hand, the risk of moral hazard resulting from a European Deposit Insurance Scheme (EDIS) is acknowledged in both cases, especially in relation to ‘legacy issues’ – that the danger ...
Mar 12, 2015 · There is a third significant way in which central bank behavior introduces moral hazard in the economic system. Recently, the European Central Bank initiated a well-publicized program of government bond purchases to “stimulate” faster economic growth. However, as the Wall Street Journal commented last week:
Nov 28, 2011 · In addition, there is no reason to believe that the risks bankers take on is less dangerous than the risk taken on by governments. The only difference is that the imminence of a collapse is higher during a banking crisis than during a sovereign debt crisis. As a result, a central bank is likely to reduce the weight on moral hazard risk.
policymakers as a potential institutional development to reduce moral hazard for banks and sovereigns. This moral hazard was frequently presented as a major cause of the international financial crisis that began in 2007 and the subsequent sovereign debt crisis in the Eurozone. In Banking Union, with the conferral of supervisory tasks to the ...
– It is the only economic agent not subject to liquidity risk – It can limit its credit exposure through unilaterally imposed eligibility criteria and collateral haircuts (not possible for two equally credit-risky counterparties) • But the central bank has two constraints: – Risk of central bank financial losses
Aug 18, 2011 · This is indeed a serious risk. But this risk of moral hazard is no different from the risk of moral hazard in the banking system. It would be a terrible mistake if the central bank were to abandon its role of lender of last resort in the banking sector because there is a risk of moral hazard.
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Oct 12, 2018 · Yet, central banks’ interventions as lender of last resort have always come at the price of conditionality in order to avoid moral hazard. Footnote 3 Since the ECB is not supposed to fuel moral hazard by providing financial help to failed states, or to failed banks, an analysis of the ECB’s conditionality helps to define the scope of its political choices, which extends beyond economic and ...
