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Aug 27, 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. 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 ...
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.
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. In our paper, […]
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.
- Ozlem Akin, José María Marín, José-Luis Peydró
- 2020
Mar 18, 2020 · The results are consistent with those bank insiders being aware of the high risks their banks were taking (and selling before the crisis). From a supervisory perspective, our results suggest that supervisors and policymakers should use the sales of top-tier management staff in banks as an early warning signal of potential excessive risk-taking in banks.
Jul 21, 2016 · These views of why banks take on excessive risk are testable. In a recent paper we tackle this question by providing sector-wide evidence from US. We examine what bank insiders were doing before the crisis and use executives’ trading with their own bank shares as a proxy for their understanding of risk before the crisis hit in 2007-08.
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Were banks aware of their excessive risk-taking before the crisis?
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identify instances of excessive risk-taking well in advance of the market meltdown to come. We then examine why, in spite of market signals about excessive risk-taking, bank managers kept originating risky loans. We document remarkable changes in the composition of risk-taking by banks from 2000 to 2006.
