To promote safe lending in the long term, some risk must be left with depositors, and far more (it is to be hoped) with owners, but not so much as to make the system vulnerable to short-term instability.
ECONOMIST: Kill or cure? | The
2.
Striking the balance between short-term systemic instability and long-term moral hazard is hard enough for domestic regulators.
ECONOMIST: Kill or cure? | The
3.
Secondly it should be used as a substitute for complicated regulation and applied against areas that cost society, such as pollution and (because it creates instability) the use of short-term debt by banks.