We show that individual investors over-extrapolate

The Panic of 2007-2008 was a run on the sale and repurchase market (the “repo†market), which is a very large, short-term market that provides financing for a wide range of securitization activities and financial institutions. Repo transactions are collateralized, frequently with...

When 'confidence' is lost, 'liquidity dries up.' We investigate the mean

At the peak of the Global Financial Crisis in fall 2008, each of the 27 member states in the European Union (EU) set many of its own banking rules and had its own bank regulators and supervisors. The crisis made the shortcomings of this decentralized approach obvious, and since its formation in...

Lehman’s U.S. broker-dealer, Lehman Brothers Inc. (LBI), was excluded from the parent company’s bankruptcy filing on September 15, 2008, because it was thought that the solvent subsidiary might be able to wind down its affairs in a normal fashion. However, the force of the parent’s demise...

On September 15, 2008, Lehman Brothers Holdings, Inc., the fourth-largest U.S. investment bank, sought Chapter 11 protection, initiating the largest bankruptcy proceeding in U.S. history. The demise of the 164-year old firm was a seminal event in the global financial crisis. Under the direction...

Ireland went from being the poorest member of the European Economic Community in 1973 to enjoying the second highest per-capita income among European countries by 2007.  Healthy growth in the 1990s eventually gave way to a concentrated boom in property-related lending in the 2000s.  The growth...

All public companies in the European Union, including Ireland’s major banks, were required to adopt IAS 39 for their annual accounting periods beginning on or after January 1, 2005.  Under the “incurred loss” model of IAS 39, banks could set aside reserves for loan losses only when...

Investment banks are in the business of taking calculated risks. Risk management infrastructure facilitates the safe pursuit of profits and the balancing of associated risks. By 2006, Lehman Brothers was thought to have a very respectable risk management system, and even its regulator, the...

The Net Stable Funding Ratio (NSFR), a liquidity standard introduced by Basel III, seeks to promote a better match between the liquidity of a bank’s assets and the manner in which the bank funds those assets.  The NSFR requires banks to maintain a minimum amount of funding deemed “stable”...