| Two Federal Reserve researchers have confirmed what many have long suspected: big banks that were bailed out by the government took on greater risk without increasing lending to businesses. In other words, after they were stabilized by an injection of government funds, the specific loans made by "too big to fail" became riskier, perhaps in an effort to recoup losses, but the total volume of loans they made did not increase, which is part of why the recovery proceeded so slowly. Lamont Black and Lieu Hazelwood, an economist and a financial analyst for the Fed's Board of Governors, found that the level of business loans issued by big banks "declined dramatically" after they received bailout funds, relative to banks that didn't. Instead, they write, large banks "originated higher risk, higher-interest loans without increasing loan volume."
All this "is suggestive of moral hazard..." |
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