Moral Hazard

By Nensi Dornan Saragih

Dr. Nisrul irawati., MBA
NIM : 207007118

ABSTRACT

Writing this related with information regarding moral hazard. A moral hazard is a state where
data is asymmetric or information that is not perfect. That is when one party has information
more often than the other party because this other party no could access that information. Crisis
economic situation that occurred in 1998 and the global economy's crisis in 2008 one of the
causes is because moral hazard action. Article this thinks that moral hazard can be influence
crisis economy. Article this will discuss what it's a moral hazard, what? Cause and how method
overcome it.

Key words : Moral Hazard

I. INTRODUCTION
In field economics , moral risk ( language English : moral hazard) occurs when
somebody increase exposure they to risk when insured . This thing could occurs , for
example , when somebody take more many risk because other people bear cost from
risks it . Risk that something party not yet sign contract with faith good or has give
misleading information _ about assets , liabilities , or capacity the credit .

II. LITERATURE REVIEW

What is it, Moral Hazard?
Moral hazard, in general, could be interpreted as the state where it is information
asymmetric or information that is not perfect, that is, when one party has information
more often than the other party because this other party no could access information
that. Moral hazard, that is, activities carried out by the holder bank shares no whole
known to the depositor. So that holder could do action outside knowledge infringing
depositors contract and actually by ethics or norm no worthy done. Infield insurance,
moral hazard related close with moral attitude or honesty from party insured owner
insurance, for example just if insured behave no honest at the moment experience
accident vehicle caused by driving with speed high. The moral hazard will be causing
increased opportunity happening loss.
Hazard's Moral History

Term this originated from 17th century and wide used by company insurance
English at the end 19th century by Dembe and Boden. Use beginning term this contain
connotation negative, implying fraud ( fraud ) or behavior no immoral. The concept of
moral hazard is subject study by economists in the 1960s and later imply behavior no
moral or fraud. Economist will use term this for describe not efficiency that can be
occur when risk moved or no could fully evaluated, than description about ethics or
morals of parties involved.

How to Overcome Moral Hazard

1. Build motivation or incentives. For example in insurance, for avoid moral hazard
, company insurance will designing contract for give incentives for customers
insure something product . Neither do they will insure in total full, where there is
a payment process money advance first from claim insurance. Insurance
companies will also complicate the process of getting money, so will more
reluctant for submit claim.
2. Punish behavior bad. Government could give bank guarantee, but punish those
in charge answer for make reckless decision.
3. Payment related performance. For avoid moral hazard in the power market work
, maybe there is a number of form evaluation performance and not there is
guarantee profession lifetime live .
4. Divide the bank so that they no too big for failed. The problem occur when bank
with savings consumers also do investment risky . This is investment risk that
requires a bailout.

Causes of Moral Hazard

Moral hazard in banking could occur because existence weakness in field

regulations and legislation, factors structure ownership, aspect loan savings and
aspects loan credit , as well weak market discipline . Good and stable regulation _ of
course should no could visited, can set with fine, no cause concentration strength
economy , have flexibility To use grow industry banking , as well as have ability for
distinguish which banks are healthy and which are not .

Preventing Moral Hazard in Banking

Problem or moral hazard constraints in the banking world could prevented with
apply management risk like a number of way below this :
 • Existence transparency in manage policy risk so that later no Becomes source
more trouble big.
• Existence appropriate and accurate assessment methodology in build
management strong risk.
• Availability information that is not only quality but also right time To use get an
accurate assessment before take decision.
• Existence concentration diversified risk.
• In manage risk must also be based on the relationship Among each unit in the
organization that.
• Have pattern taking disciplined decisions.
• Existence setting limits and tolerances risk banking. Useful limit setting for give
certainty by maximum to taker risk and minimize opportunity occurrence of
moral hazard.
• Implemented internal control implementation in every transaction.

III. DISCUSSION
Moral Hazard, Cause Crisis 1998 Economy and Crisis 2008 Global Economy
Some opinion economists say that one of the reasons crisis economy in various
countries is the existence of moral hazard action from owner banking or owner
capital. Crisis economic situation that occurred in 1998 and the global financial crisis
in 2008 one of the causes is because moral hazard action. Unlike the 1998 crisis, the
global crisis economy in 2008 was sourced from congested credit housing in the
United States. In 2008, the global economic crisis marked with many urgent
indicators that are existence drop economies around the world. Needle the related
height price world oil, which causes crisis world food and inflation in various
countries, especially because of existence increase ingredient food. Due to
dependency production food to oil, and also use ingredient food as alternative oil
earth, so cause inflation high. Likewise, crisis credit traffic jams cause bankruptcy.
Some big banks and institutions finance non-bank, which then increases
unemployment and creates a global recession.
When observing the 2008 crisis, there is a similar situation in Indonesia and
several Asian countries in 1997/1998. Crisis moment that more many caused by
failure payment routine foreign debts. The crisis economy adds long-suffering
Indonesian people. Conglomerates moment that a crowd using his bank as
community fundraisers. After collecting money, they used it as a credit to raise
company those others. When we finally credited the congested government, we
bought all clogged asset conglomerate companies. It is also the same with the
situation in the United States. Indonesian government currently also argues if
condition sort of this not saved so system finance our will collapse and the economy
will be destroyed. In the end, the government our loss because do purchase asset
congested with price very tall However sell it with a price under market price.
Crisis 2008 global finance begins from America. Different from crisis 1998
financial impact local, 2008 crisis is widespread to almost all part of the world. stock
exchange falling. companiesfinance multinational bankrupt. Many companies in the
United States do subtraction workers. Great effect normal Among other things,
causing the world capital market in the stock exchanges of world countries to decline
drastically and even the Indonesia Stock Exchange had close existing stock exchange
activities in order to save the market from act speculators share or other moral
hazard actions. Moment that, information from the Dow Jones Wilshire 5000, the
United States stock exchange has lost Mark share of $2.4 trillion only in one week
final for a total of $8.4 trillion along 2008. For that, the United States government has
also do amount business rescue finance in the country to save world finance. After
the proposed bailout bill or rescue asset congested with method buy asset the fail
conducted consequence part big member United States Senate refuse suggestion
that, finally the United States validate bailout law of $700 billion as well as buy letter
worth $900 billion . Step this followed by the G7 countries ( Canada , UK , France ,
Germany , Italy and Japan ). Government English has give loan to banking they with
fresh fund injection of 500 billion pounds as well as ensure all bank loans. Argument
government bailout many opposed. Because of the decision authorizing this bailout
will also impact big against moral hazard.
In Indonesia, the impact crisis start effect at the moment approaching end 2008.
After recording growth economy above 6 percent until with quarterly to three 2008,
the Indonesian economy began get pressure weight in quarter fourth 2008. That
thing proven happening deceleration economy by significant especially because down
performance export. On the side external, balance sheet Indonesian payments are
experiencing enhancement deficit and value rupiah exchange experienced weakening
significant. In financial markets, the difference risk (risk spread) of letters valuable for
Indonesia to experience enough improvement significant encouraging capital outflow
from investment foreign exchange on the stock exchange, Government Securities
(SUN), and Bank Indonesia Certificates (SBI). even though Indonesia 's position in
terms of general not the worst among other countries. The Indonesian economy is
still could grow moment that by 6.1 percent in 2008. Meanwhile fundamental
condition of sector external, fiscal and industrial banking is enough strong for
withhold exposed global crisis
 IV. CONCLUSION

Moral hazard in banking could occur because existence weakness in field

regulations and legislation , factors structure ownership , aspect loan savings and
aspects loan credit , as well weak market discipline . Good and stable regulation of
course should no could visited , can set with fine , no cause concentration strength
economy , have flexibility To use grow industry banking , as well as have ability for
distinguish which banks are healthy and which are not .

REFERENCES
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moral hazard dan pencegahannya pada industri perbankan di
3. https://www.wartaekonomi.co.id/read346952/apa-itu-moral-hazard
4. https://www.investopedia.com/terms/m/moralhazard.asp
5. https://www.researchgate.net › ...PDF
Moral-Hazard-dalam-Asuransi-Kesehatan ...