Our Research Focus: Financial Markets & Institutions
Topics: Financial Institutions, Housing, Legislation and Regulation, Lending, Moral Hazard, Too-Big-To-Fail Institutions
The heavy losses in bank asset portfolios do not reflect an inherent failure of markets to monitor risk adequately but rather the perverse incentives of the financial safety net to excessive risk-taking. The unsustainable rise in house prices and their subsequent sharp decline derived from the combination of a public policy to expand home ownership to unrealistic levels and from a financial safety net that encouraged excessive risk-taking by banks.
Amanda L. Kramer
(804) 697-8606
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