By: Lincoln Fung

Lincoln Fung — Fri, 12 Mar 2010 00:51:33 +0000

I am not sure I haven’t missed an important point in banking guarantees.
Why should a guarantee necessarily be related to the moral hazard issue?
Can’t it be done in way that does its promised guarantee, but also severely punish the culprits, at least to the degree that deters moral hazard behaviours by the banks or financial institutions?
Why don’t economists or policy makers see the possibility of a better approach than the conventional thinking of and approach to guarantees and improve such a policy?
For example, if a government guarantee for some sort is actually being used, then the government can make the agents involved pay a reasonable price up to the point of completely wiping out all its shareholders and creditors value.
In that way, let’s say the normal types of bank depositors are protected and hence can avoid unnecessary bank runs, but the bank in question will have to pay a big price.
Is that too difficult to devise or design, or what?
Should that be called Finance 001?

Comments on: Australia lifts its bank guarantees

By: Lincoln Fung