Business Commons^™

Government Policy And Moral Hazard In The 2007-2009 Financial Crisis, Ariana Abrams

Honors Theses

The US government has invested over $3 trillion in financial assistance programs and bailouts for ailing companies affected by the 2007-2009 financial crisis. This paper analyzes the different government policy efforts in response to the collapse of the U.S. financial sector and whether these efforts increased the risk of moral hazard for small, medium, and large banks. Moral hazard occurs when a company has an incentive to take greater risks than it otherwise would, because the company gains all the benefits from excessive risk-taking, but does not bear all of the losses. I measure moral hazard through the debt-to-equity ratio, …