Tuesday, October 27, 2009

Central banks a hazard to banks

Bank of Canada Governor Mark Carney, joining central bankers everywhere with new details of their jargon-filled plans to flood the world with more jargon, declared yesterday in Montreal that "we are awash in moral hazard. If left unchecked, this will distort private behavior and inflate public costs." True enough, but can you guess where the moral hazard came from -- and who's doing the most to let it run unchecked?

The fact is we're awash in central bankers. From Mark Carney to the U.S. Fed's Ben Bernanke and the Bank of England's Mervyn King, central bankers are building up a massive regulatory regime of bank controls, new capital requirements, compensation rules, living wills, and too-big-to-fail structures. If we're already awash in moral hazard, why are they creating more of it?

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