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Aug 27, 2020 · In the extreme end of this view, banks were not aware of their excessive risk-taking prior to the crisis. One empirical way to analyse these issues is to document what insiders were doing before the crisis. In a recent paper, we analyse the trading behaviour of top executives in US banks.
Top executives of US banks that experienced huge losses in the 2008 crisis sold their own shares well before the crisis hit. Excessive risk-taking by banks is often associated with economic recession. A key question for policy and for the academic literature is why banks take excessive risk. There are two (non-mutually-exclusive) views.
- José-Luis Peydró
Excessive risk-taking by banks is widely blamed as a primary factor behind the financial meltdown of 2007-2008. Yet, not much work has been done on whether banks fundamentally changed their risk-taking behavior prior to the crisis, nor has much formal work been done on whether banks’ risk-taking was “excessive” in any way.
May 13, 2015 · The crisis threatened the global financial system with total collapse, led to the bailouts of many large uninsured financial institutions by their national governments, caused sharp declines in stock prices, followed by smaller and more expensive loans for corporate borrowers as banks pulled back on their long-term and short-term credit facilities, and caused a decline in consumer lending and ...
- Anjan V. Thakor
- 2015
Oct 5, 2018 · “There are a lot of traders out there who weren’t active before the crisis, and who don’t have the searing memories of what happened. If you look at the median age of people making investment decisions in banks and hedge funds today, you can guess that many of them are not familiar with the nature and consequences of excessive risk taking.”
of the Financial Crisis Martin Neil Baily, Robert E. Litan, and Matthew S. Johnson ... that failed to restrain excessive risk taking. ... Before 2000, subprime lending was virtually non-existent, ...
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Was banks' risk-taking “excessive” prior to the financial meltdown?
Were banks aware of their excessive risk-taking before the crisis?
Did bank insiders know that banks were taking excessive risks?
What causes a banking crisis?
Why do banks take excessive risk?
Is the level of risk assumed by banks excessive?
Nov 17, 2020 · Second, the behavioural view states that banks take excessive risks because they neglect the possibility of extreme events (unlikely tail risks) or have over-optimistic beliefs (Akerlof and Shiller, 2010; Gennaioli et al., 2012; Kahneman, 2011). 2 In the extreme end of this view, banks were not aware of their excessive risk-taking prior to the crisis.
