Article: ANALYSIS: MORAL HAZARD AND RISK - II

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Analysis: Moral hazard and risk - II

SKOPJE, Macedonia, May 31, 2002 (United Press International via COMTEX) -- Established economic theory pioneered by Nobel prizewinner Robert C. Merton in 1977 shows that, counterintuitively, the closer a bank is to insolvency, the more inclined it is to risky lending. Nobuhiko Hibara of Columbia University demonstrated this effect convincingly in the Japanese banking system in his November 2001 draft paper titled

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