Moral Hazard in Banking

Bank's moral hazard Moral hazard is a matter of asymmetric information that occurs after trading. Essentially, lenders are at risk of borrowers taking unpopular activities from the lenders' point of view, thereby reducing the likelihood of loan repayment. In the article by Gary H. Stern "Management of Ethical Risks with Market Signals: How Regulatory Authorities Change in the Banking Industry", we discuss moral hazards inherent in the protection of depositors' financial financial nets by the government .

In this article I will explain the definition of moral hazard and examples of insurance, banking transactions and management. The intersection of these examples includes the parties involved in moral hazards, the risk behavior they can not manage, and the social costs of the problem. In order to reduce the problem of moral hazard, it is necessary to establish a risk measurement and management system. It is recommended to adopt risk sharing insurance, serious bad debt penalty, and long-term performance evaluation solution.

One problem is that the central bank has directly supported moral hazards in financial markets over the past eight years. Although many traders and investors can maintain profits, we believe that bear market is impossible as the central bank will redistribute the loss there. As a result, most market participants are not ready for the next big market system change and may face catastrophic losses. There are excellent resources on ML, AI, online transactions. The best way to learn is trying to solve some practical problems. But I guess it is impossible for most traders to move. A 95% trader draws a line on the chart, observes the moving average, is used to understand and apply the skill set necessary for the AI ​​rule.

The second, deeper reason why financial globalization is progressing is political. The theory "too big to fail" creates a moral hazard problem. Banks will benefit from successful investment, but incentives for both consciousness and evolution will be a heavy burden because they will not be bothered by failed investment. Risk Politicians face the problem of time despite their argument of developing market discipline. They want banks to stay healthy, but they lack the political will to make people feel pain and distress distrustful banks and their creditors.

Deposit insurance will reduce this balance by introducing moral hazard in the banking system. "Moral hazard" means that if risk is guaranteed, people will bear more risk. In the case of deposit insurance, depositors are encouraged to patronize banks offering the highest interest rates, no matter how much risk they take. Economist Richard Salzman says that: "Deposit insurance was created to avoid the execution of banks in the future, rather than escape from the bank by bad, flee to the bad credit bank." In the event that the situation got worse, the depositor helped At least the upper limit set by FDIC will be over $ 2,500 in time, over 1 US dollar in 2008) has increased to $ 250,000.