It appears that supervisory authorities do not have much more information than the other market participants on the creditworthiness of major institutions. Second, those responsible for wrong investment decisions do not seem so far to having been penalised substantially, in a way that will discourage similar behaviour in the future. Several top managers have stepped down from their positions with huge payment compensation.
Broader responsibilities for internal risk management and control, in particular within financial institutions’ boards, do not seem to having been fully scrutinised. It might be too early to judge, but one of the causes of the recent turnmoil has certainly been poor internal governance. Unless this issue is properly addressed the risk of creating moral hazard cannot be underestimated.