At the same time, Bagehot noted that while it was important to reduce financial stress, it was also critical to do so in ways that mitigate moral hazard. This remains true today. Moral hazard emerges whenever market participants or other economic actors feel that they can engage in risky behaviour without bearing consequences if things go wrong.
The group’s objective is to enhance the capability of the financial system to mobilise private capital for green or low-carbon investment. A “green economy” will require a capital-intensive transition, with investments in new skills, institutions and technologies. While public funds are important, they can only provide a small share of what is required.