In the absence of other measures, this safety net reduces the restraint that creditors would otherwise place on unsound lending because the insurance reduces the amount of money they have at stake. The tendency of banks to take on excessive risks when they face little economic penalty for doing so is an example of what economists call a moral hazard problem.
Few other measures are currently under discussion, such as, imposing risk weight on sovereign exposure and new standardised approach for credit and operational risk. Having dealt with the framework of macro reforms, let me now briefly touch upon nuts and bolts of the reform process.