Moral hazard

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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.


The tendency of some insured individuals or businesses to take excessive risks, that they would not have taken if they had not been insured.


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.

See also