Moral hazard: Difference between revisions
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A tendency of managers of financial firms to take excessive risks, knowing that their business will be saved by the authorities. | A tendency of managers of large financial firms to take excessive risks, knowing (or expecting) that their business will be saved by the authorities. | ||
Banking supervision reforms, including Basel III, are designed to reduce moral hazard of this kind. | |||
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* [[Agency risk]] | * [[Agency risk]] | ||
* [[Anti-selection]] | * [[Anti-selection]] | ||
* [[Basel III]] | |||
* [[Financial Stability Board]] | |||
* [[Pension Protection Fund]] | * [[Pension Protection Fund]] | ||
* [[Too Big To Fail]] | |||
[[Category:Manage_risks]] | [[Category:Manage_risks]] | ||
[[Category:Risk_frameworks]] | [[Category:Risk_frameworks]] | ||
Revision as of 12:04, 1 August 2016
1.
A tendency of managers of large financial firms to take excessive risks, knowing (or expecting) that their business will be saved by the authorities.
Banking supervision reforms, including Basel III, are designed to reduce moral hazard of this kind.
2.
The tendency of some insured individuals or businesses to take excessive risks, that they would not have taken if they had not been insured.
3.
The risk that a party has not entered into a contract in good faith, or has provided misleading information.
For example, an insured may attempt to take unfair advantage of an insurer or other guarantor by suppressing information relevant to the assessment of a risk, or by not acting in accordance with the terms of a policy.
UK pensions legislation contains a number of clauses specifically designed to reduce the risk of moral hazard.
