For safety and soundness reasons, bank supervisors must be sure that a bank with greater exposure to riskier lines of business, products, and customers holds more capital than a bank that is more risk adverse and designs its business plan to minimize risk taking.
Sometimes, international investors ask me, “Why should we buy bonds from sovereigns in crisis if their European partners are unwilling to do so to a larger extent?” My answer is “Look, the European partners have to be aware of moral hazard implications, because they are players in the European political game,” the game, which is reminding us of the story of the purchase of the Sybilline books.