Government policy and the financial sector : dealing with moral hazard and "too-big-to-fail"

Choudhry, Moorad and Landuyt, Gino (2009) Government policy and the financial sector : dealing with moral hazard and "too-big-to-fail". Centre for International Capital Markets discussion papers, 2009 (15). pp. 1-16. ISSN 1749-3412

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Abstract

The large-scale interventions by Western governments in 2008 aimed at underpinning the banking system have confirmed the extent of state support for the financial sector. The explicit backing of the “lender of last resort” has reemphasised the moral hazard problem. Without further reform of the markets, the current infrastructure has become one in which private sector profits are privatised, but losses are socialised at taxpayer expense. This paper assesses the extent of moral hazard risk now inherent in the banking system, and makes recommendations that will help to mitigate this risk. We provide policy suggestions in the areas of central bank communications, systemic risk, and dealing with the too-big-to-fail bank.

Item Type: Article
Uncontrolled Keywords: Centre for International Capital Markets discussion papers; CICM discussion papers; banking sector; moral hazard; systemic risk
Subjects: 300 Social sciences > 330 Economics
Department: Guildhall School of Business and Law
Depositing User: Mary Burslem
Date Deposited: 21 Apr 2015 10:25
Last Modified: 21 Apr 2015 10:25
URI: http://repository.londonmet.ac.uk/id/eprint/446

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