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Moral suasion

Moral suasion is a tactic used by Federal Reserve Board to influence, rather than coerce, banks to tighten or ease credit.

Expanded Definition

Moral suasion is perhaps the preferred method used by the Fed to resolve individual company crises. It can be as simple arranging and overseeing a closed-door meeting between potential buyers and lenders for a troubled company or it can be more direct in that the Fed arranges or facilitates for capital to be provided to the company from the federal government. Other avenues could be greater inspections of afflicted companies or pleas to the unaffilicted to take action to resolve the situation.

The goal of moral suasion is discretion for the afflicted company and the least potential financial involvement for the Fed. The threat of greater intervention usually is enough incentive to make afflicted companies agreeable to moral suasion.

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