Excessive risk-taking in United States banking, 1985 to 1990
The wave of bank failures during the late 1980s was comparable in magnitude to the one witnessed during the Great Depression. The absence of any corresponding economic downturn during the recent crisis, however, initially created a certain mystery as to its causes. By 1990, a near-consensus had emerged to the effect that certain alleged flaws in the system of bank regulation were to blame, in particular the existence of flat-rate deposit insurance. The focus in the dissertation, by contrast, is on errors in strategic management collectively made by bankers during the years immediately prior to the banking crisis. Specifically, the thesis is that bankers mismanaged aggregate credit-risk by effecting expansionary lending policy precisely when such a policy was ill-advised. This, in turn, resulted in mass loan-default and bank failure during the late 1980s. Analysis of bank-lending data and default patterns indicated that the mismanagement of aggregate credit-risk in this manner contributed overwhelmingly to the, recent banking crisis. The research which underlies the dissertation made intensive use of bankruptcy data generated in raw form by the U.S. Department of Justice. The dissertation presents a strategy for managing aggregate credit-risk more prudently, the focus of which is a methodology for forecasting bankruptcy rates across the economy and by loan category. Sound management of aggregate credit-risk by the banking sector both enhances bank profits and reduces the potential for the sort of harm to the general economy which is likely to follow from perverse credit policy.
Year of publication: |
1999-01-01
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Authors: | Willis, Michael |
Publisher: |
ScholarlyCommons |
Saved in:
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