Moral hazard
What Moral hazard means in Economics B A-Level, as defined for Pearson Edexcel.
Definitions of Moral hazard
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Reference: Pearson Edexcel
Taking excessive risks because the negative consequences will be borne by someone else, encouraged by the belief that major banks were 'too big to fail' and expected government bailouts.
Excessive risk-taking by banks that lending of last resort can encourage, mitigated by providing funding at a penalty interest rate and requiring collateral.
A situation in which banks take excessive risks because they believe the government will bail them out, which regulation seeks to mitigate.
Topics that use Moral hazard
- The Global Financial Crisis (Pearson Edexcel A-Level)
- The role of the central bank (Pearson Edexcel A-Level)
Related terms
- Financial stability
- Base rate
- Central bank
- Central banking
- Consumer protection
- Inflation targeting
- Inflationary pressures
- Liquidity and solvency
Using Moral hazard in the exam
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