Professor Patrick Honohan:

No, moral suasion is useful but it is not enough if the regulated entity will not heed the indication. Moral suasion has nothing to do with morality. It has to do with non-legally binding requests whereby one says, "Please stop doing this, please stop doing that" and if the banks know what is good for them, they say, "Okay, yes, let's behave differently". However, if they do not respond, it has to be followed up with enforcement, strict directives and rules. It is not principles versus rules but principles and rules. If you only have rules, you are going to have big problems like the Americans because banks say, "All we have to do is abide by the rules". Now we are seeing a lot of lawyers and a lot of financial engineers finding ways of getting around the rules. They have to be supplemented by principles. Principles does not mean "Now, be good". It starts with that and if they will not change their behaviour, that has to be followed up with directives such as, "Since you would not behave in the qualitative improvement way, we will tell you to do this, this and this". That is what you have to do. You have to try to do that in such a way that it does not prevent the services that the economy needs from banks from being provided.