Friday, June 27, 2008

Catching up with moral hazard

In the U.S., we recently saw the unprecedented opening of the Federal Reserve discount window to nonbanks. By definition, unprecedented events set a precedent. And regardless of whether that window is officially opened or closed, the market now assumes that it will be open if necessary on an ad hoc basis.

Interesting OpEd in today's WSJ from Vikram Pandit of Citigroup. As he highlights, the moral hazard has already been established, the Fed will bail out failing institutions that threaten the entire financial system. We now need regulations to manage that moral hazard.

Toward a Transparent Financial System -

No comments: