What is Moral Hazard?

First it was the Silicon Valley Bank (SIVB) fallout, followed by Signature Bank (SBNY). Then Credit Suisse (CS) was bought out at a fire sale price by UBS, in a deal orchestrated by the Swiss National Bank. There’s been a flurry of news surrounding the banking crisis, or turmoil, as some may call it, and as a result there is one term that has made its own resurgence - “moral hazard”.

“Moral hazard” is essentially when one entity engages in an activity of elevated or heightened risk, knowing that another party or entity is their safety net. Yahoo Finance’s Brad Smith breaks down what “moral hazard" is in layman’s terms, giving you his very own example of a time he exhibited “moral hazard” - and it’s not what you think.