Moral Hazard

  • Financial Crisis
  • We argue that changes in the life insurance industry have created a nontrivial moral hazard.
    • We document the industry's shift from sales of life insurance to sales of mainly rate-of-return oriented investments like single premium deferred annuities (SPDAs) and guaranteed investment contracts (GICs).

1992 - FRB-Minneapolis - SPDAs and GICs: Like Money in the Bank?, by Neil Wallace and Richard M. Todd, Federal Reserve of Minneapolis - 18p

  • If you go too far in insuring or regulating, what you create is a moral hazard where the market participants themselves don't worry about the risks being taken, because they expect “Uncle Sugar” to bail them out. (p34)

--  Edward C. Ettin

2006 0310 - FRB - Federal Reserve Board Oral History Project - Interview with Edward C. Ettin, Former Deputy Director, Division of Research and Statistics - 57p