kaal:claim:2714974-028

Direct regulation of hedge fund leverage increases moral hazard costs, because lenders and counterparties relax their own vigilance once they rely on government rules to constrain fund risk taking.

Direct regulation could also increase moral hazard costs as lenders and counterparties may relax their vigilance in reliance on the government rules.

Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016), INDIRECT HEDGE FUND REGULATION, p. 25
https://ssrn.com/abstract=2714974 · source PDF

Kaal and Oesterle, The History of Hedge Fund Regulation in the United States (2016). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2714974

• applies where government rules substitute for private monitoring

failuresupport: arguedfailure: Regulatory crowding out of private monitoringfamily: moral-hazard-and-bailout-expectationrisk-and-incentiveseconomicscompliance

• extends kaal:claim:1806252-013 Because banks expect to be bailed out with taxpayer funds, they may have less incentive to monitor their hedge...

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