Risk elevation, subjective (moral hazard)

Behavioral change in the presence of asymmetric information, if the expected bad solution is (co-)borne by others (especially when debt no longer acts as an incentive for management, and corporate managers will be tempted to continue expanding using debt until the group becomes too big to fail). – In particular, a less careful business policy when the central bank or international institutions make themselves available as lender of last resort. This leads banks to pay less attention to certain market risks, such as concentration risk, market value risk and foreign exchange risk. – See purchases, central bank, bail-out, lender of last resort, International Monetary Fund, credit expansion, loan securitization, moral hazard, blowback effect, single master liquidity conduit, too-big-to-fail principle, insurance uncertainties, worst case scenario.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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