Initial Reflections on an Evolving Standard : Constraints on Risk Taking by Directors and Officers in Germany and the United States

The collapse in the market for exotic financial instruments, the liquidity crisis in major financial institutions and the government bailouts in 2008-09 illustrate the massive social cost of financial risk taking. The credit crisis of 2008-2009 also convinced many observers that the level of risk in the financial sector was excessive. In general, it is difficult to escape the conclusion that there was an enormous amount of risk taking in financial markets in the years leading up to 2008. Risky investments were blamed for the downfall of major financial institutions, destruction of markets for financial instruments and widespread economic chaos. The more hotly debated question, however, is whether bankers assumed too much risk in particular transactions, and if so, how to define how much risk is too much. The article makes some preliminary observations on how two countries – the United States and Germany – are likely to deal with this problem in the aftermath of the 2008 financial crisis. The article illustrates how attitudes toward markets and risk in the United States and in Germany are likely to affect the response to the crisis of 2008