This brings the bank directors and officers Financial institutions in a comfortable situation. After it has privatised record profits in the years of robust economic growth, losses are imposed on the German taxpayer. The banks thus receive the status of a power or water supplier. The good is essential for living expenses such as water and electricity money which they provide. A moral danger (also known as moral hazard), which was already cause results in the Asian financial crisis in 1997. If a financial institution knows that it is not bust, may be it will be sooner or later again ready to take increased risks. Due to low capital adequacy and the weakened balance sheets, as well as the recession a current moral hazard not danger currently of course. But what happens when the economy recovers? The problem lies within the financial sector and was cemented by the Federal Government.
Often, even the same bank directors and internal structures are available, which have brought the banks in trouble and triggered the intervention of the Federal Government. A new beginning by a Insolvency has been ruled out. The price for this: The financial system has been weakened sustainably. Bankruptcies of economic agents are part of a market economy. Be taken over by healthy economic agents the recoverable assets or business units.
For non-recyclable parts of the company, there is no place in the competition. In the German financial sector have been allowed there not come a such new start and the result will be in the long term at best average results. In the long term, the financial system has been weakened by the Federal Government. The moral hazard problem has been raised and we will fight it with more regulation. Do you need really more regulation or only a more effective regulation? The Government justifies its bank bailout at IKB and Hypo Real Estate by the specter of so-called systemic risk. That is, the cost of the bailout of Hypo Real estate are lower than cost of insolvency, which could bring more banks in distress and would jeopardize the financial system itself. About a You can discuss such a risk when a large German money House from the the private pillar of the banking sector with significant customer deposits would face insolvency. But not at a special bank Hypo Real Estate, which is not funded by customer deposits and much of their losses as a result of poor risk management has accumulated. It is as if you put a student who has only sixes in the testimony, in the next class. Or in other words: the social market economy can score goals only with the left foot. Christian Tubben