Avoiding Moral Hazard When Banks Are on the Brink

Experts predict that panic will bring the world economy to a standstill if the euro collapses and Australia will not go unscathed, even though it is financially strong.The federal government's decision to continue a banking guarantee is designed to stop the alarming bank runs that characterised the onset of the 2008 financial crisis, but the scheme that backs individual retail bank accounts up to A$250,000 is highly controversial. Is it just a gift to the Big Four banks that may incite moral hazard through riskier behaviour? Ross Buckley, a professor of finance law at the University of New South Wales, believes banks should be funding their own future stability.