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From hubris to nemesis: Irish banks, behavioural biases and the crisis (2013.)

“The Irish experience provides a pertinent case study of what can happen when hubris and associated behavioural biases take control of a bank’s risk management strategy.

 

Michael Dowling, lecturer in finance, Dublin City University
Brian M. Lucey, professor of finance, Trinity College Dublin

Journal of Risk Management in Financial Institutions, vol 7(2)

The collapse of the Irish economy, still ongoing after five years, has its roots firmly in the banking sector.

Lax risk management, aided by poor board oversight and behavioural biases among senior executives, is now viewed as one of the primary causes of overlending during the ‘Celtic Tiger’ years. This overlending fuelled excessive credit growth and the subsequent banking implosion, which saw all Irish banks ending in state ownership.

The authors consider the causes of the Irish banking sector collapse from a behavioural perspective, focusing on the role of Boards of Directors in bank risk management. They then explore the likely presence of behavioural biases among senior executives.

The Irish experience provides a pertinent case study of what can happen when hubris and associated behavioural biases take control of a bank’s risk management strategy.

Access the full paper here: From hubris to nemesis: Irish banks, behavioural biases and the crisis 

 

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