The Ryan Review
Moral Hazard is a clearly defined economic term described as a lack of incentive to guard against risk where one is protected against its consequences.
Insurers worry about it all the time and build the cost into premiums. Global lenders like the IMF trade off the risk by not giving loans out to beleaguered countries in one lump sum lest they splurge on it, but eking it out in bits and bobs as they did with us during the banking crisis. One thing is agreed on: it should never be a reward mechanism.
So I'm a little surprised by AIB's move to slash interest rates for errant borrowers. Those most in arrears are to see a cut from the present rate of around 4.5pc pa to just 0.5pc pa. While undoubtedly the majority who are in 90+ days' arrears will be chuffed with any such move, how about their compliant, prudent neighbours, still forking out nine times more? Ulster Bank has a similar offer on its books and it's certainly a sea-change from the lack of bank engagement to those in financial trouble.
However, while it staves off expensive repossession proceedings and ensures the bank gets some money at least, one wonders how a family, already stuck to the pin of their collar, but dutifully sacrificing luxuries to meet their payments might react. It is the very dilemma that keeps actuaries awake at night.
With evidence that the arrears issue seems to be plateauing finally, might this move tip some less conscientious home owners into a deliberate default?