What is a 'Moral Suasion'

A moral suasion is a persuasion tactic used by an authority (i.e. Federal Reserve Board) to influence and pressure, but not force, banks into adhering to policy. Tactics used are closed-door meetings with bank directors, increased severity of inspections, appeals to community spirit, or vague threats. A good example of moral suasion is when the Fed Chairman speaks on the markets - his opinion on the overall economy can send financial markets falling or flying.

BREAKING DOWN 'Moral Suasion'

Often termed simply 'suasion', it has been used to persuade banks and other financial institutions to keep to official guidelines. The 'moral' aspect comes from the pressure for 'moral responsibility' to operate in a way that is consistent with furthering the good of the economy. In Australia, the Reserve Bank has show preference for this type of policy control. In Japan, it is known as 'window guidance' and in the U.S., it is known as 'jawboning' - exercising the persuasive power of talk rather than legislation.

RELATED TERMS
  1. Moral Obligation Bond

    A type of revenue bond issued by a municipality or similar government ...
  2. Tactical Trading

    A style of investing for the relatively short term based on anticipated ...
  3. Moral Hazard

    The risk that a party to a transaction has not entered into the ...
  4. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  5. Reservable Deposit

    A bank deposit subject to reserve requirements. Reserve requirements ...
  6. Bank Reserve

    Bank reserves are the currency deposits which are not lent out ...
Related Articles
  1. Small Business

    What is a Moral Hazard?

    The risk that a party to a transaction has not entered into the contract in good faith, or has provided misleading information.
  2. Small Business

    Moral Hazards: A Bump In The Contract Road

    Learn how this phenomenon can cause a party in an agreement to behave differently than expected.
  3. Small Business

    The 3 Moral Types Managing Your Money

    Your financial fate is influenced very substantially by whether your broker or firm is immoral, amoral or moral.
  4. Insights

    How Much Influence Does The Fed Have?

    Find out how current financial policies may affect your portfolio's future returns.
  5. Insights

    What Do the Federal Reserve Banks Do?

    These 12 regional banks are involved with four general tasks: formulate monetary policy, supervise financial institutions, facilitate government policy and provide payment services.
  6. Financial Advisor

    How to Dodge Brokers Using Smarmy Sales Tactics

    Many finance professionals use illegal, high-pressure sales tactics to sell bad securities to investors. Here's how to know if you're being swindled.
  7. Personal Finance

    What's the Federal Funds Rate?

    The federal funds rate is the interest rate banks charge each other for overnight loans to meet their reserve requirements.
  8. Insights

    Regional Banks Give The Fed A National Perspective

    We all know that the Federal Reserve utilizes monetary policy to control the economy, but what do the 12 regional Federal Reserve Banks do?
  9. Investing

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  10. Investing

    What are the Federal Reserve Chairman's responsibilities?

    Learn about the duties and responsibilities of the chairman of the Federal Reserve Board, including testifying before Congress and as chair of the FOMC.
RELATED FAQS
  1. Why is moral hazard so prevalent in the financial services industry?

    Learn the key factors that cause moral hazard to be prevalent in the financial services industry and how asymmetric information ... Read Answer >>
  2. How does the Federal Reserve's set discount rate affect my personal finances?

    Discover how the Federal Reserve implements its chosen monetary policy through its discount rates, and how these actions ... Read Answer >>
  3. How do economists define moral hazard?

    Find out how economists define moral hazard, and learn about some of the most common explanations offered for instances of ... Read Answer >>
  4. How does the Affordable Care Act affect moral hazard in the health insurance industry?

    Find out why the Affordable Care Act increases moral hazard in health insurance by pushing consumers farther and farther ... Read Answer >>
  5. What are the most effective ways to reduce moral hazard?

    Discover when moral hazard occurs, what it means in different arenas, and effective tools for lenders, insurers, and employers ... Read Answer >>
  6. What is moral hazard?

    An idea that a party that is protected in some way from risk will act differently than if they didn't have that protection. ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center