Moral Suasion

Moral Suasion

Statements or acts by a regulatory authority to encourage — rather than coerce — compliance with accepted standards. For instance, given a non-compliant thrift, the Office of Thrift Supervision may increase the number of inspections, privately tell executives what needs to be done, and use other persuasive tactics to change the thrift's behavior, rather than simply reporting the violations and fining it accordingly. The idea behind moral suasion is that sometimes the threat of punishment changes behavior just as well and with less embarrassment than punishment itself. The term is often applied to the Federal Reserve Board's statements in which it makes vague threats of certain actions (such as raising interest rates) in an attempt to change market actors' behavior. Moral suasion is known less formally as jawboning.