Moral risk to creditors

Nature

Term used by creditors to oppose debt rescheduling or debt relief to one debtor on the grounds that it may encourage other debtors to behave imprudently to secure similar concessions.

Claim

Moral risk to creditors is a critical issue that undermines the integrity of financial systems. When borrowers engage in reckless behavior, believing they can evade consequences, it jeopardizes the stability of credit markets. This moral hazard not only erodes trust between lenders and borrowers but also leads to increased costs for responsible borrowers. Addressing this problem is essential to ensure accountability, promote ethical financial practices, and protect the interests of all stakeholders in the economy.