This meant that banks made loans recklessly. However, in many Asian countries, bank manager behavior was not monitored . Note that what deters wrong behavior is a function of the expected penalty. Two particular Moral Hazard problems exist in the banking industry. The second problem comes from the basic desire to lend.
Banks can lend whenever they get a hold of excess reserves.
Some banks would lend out all reserves if given the chance. As a result, banks are required to hold a certain amount of reserves. All Rights Reserved.