Greek bank securitisation creates moral hazard

Greek banks have securitised their NPLs and, unusually they have chosen to hold the senior tranches not junior ones, that are guaranteed by the government against credit risk.

The effect is the banks have no credit risk (no skin in the game) so have a conflict of interest and have moral hazard

One article commentator said the reason for not holding subordinated tranches is to free capital for lending.

That is all very commendable but it does not take away the moral hazard and further more it gives bankers an opportunity to originate more risky loans and collect large arrangement fees and high interest until the loans turn into more NPLs that banks can sell off and get govt guarantees, that release more capital, and so it goes on an on.