Causes of the financial crisis: Risk misperception, policy mistakes, and banks' bounded rationality
This article describes important determinants of the current financial crisis. In particular, the text focuses on the bounded rationality of banks which contributes to the credit cycle. The credit cycle is the mechanism that links the present financial crisis with earlier crisis. Shortcomings on the side of monetary policy, rating agencies, and bank regulation are also discussed. We propose measures to strengthen the stabilizing effect of market forces, banks' risk management, as well as possible changes to regulation and monetary policy.
Volume (Year): 39 (2010)
Issue (Month): 2 (April)
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/620175|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Karl E. Case & Robert J. Shiller, 2003. "Is There a Bubble in the Housing Market?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(2), pages 299-362.
- De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990.
"Noise Trader Risk in Financial Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 98(4), pages 703-38, August.
- J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, . "Noise Trader Risk in Financial Markets," J. Bradford De Long's Working Papers _124, University of California at Berkeley, Economics Department.
- De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Noise Trader Risk in Financial Markets," Scholarly Articles 3725552, Harvard University Department of Economics.
- Goodhart, C., 2008. "Liquidity risk management," Financial Stability Review, Banque de France, issue 11, pages 39-44, February.
- repec:fip:fedgsq:y:2008:x:76 is not listed on IDEAS
- Thomas M. Humphrey, 1989. "Lender of last resort: the concept in history," Economic Review, Federal Reserve Bank of Richmond, issue Mar, pages 8-16.
- Gabriel Jiménez & Jesús Saurina, 2006. "Credit Cycles, Credit Risk, and Prudential Regulation," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
- Raghuram G. Rajan, 1994. "Why Bank Credit Policies Fluctuate: A Theory and Some Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 399-441.
- Zingales Luigi, 2008. "Plan B," The Economists' Voice, De Gruyter, vol. 5(6), pages 1-5, October.
- Foos, Daniel & Norden, Lars & Weber, Martin, 2010. "Loan growth and riskiness of banks," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2929-2940, December.
- Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon & Michael S. Pagano, 2002.
"Do Bankers Sacrifice Value to Build Empires? Managerial Incentives, Industry Consolidation and Financial Performance,"
Center for Financial Institutions Working Papers
02-18, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Hughes, Joseph P. & Lang, William W. & Mester, Loretta J. & Moon, Choon-Geol & Pagano, Michael S., 2003. "Do bankers sacrifice value to build empires? Managerial incentives, industry consolidation, and financial performance," Journal of Banking & Finance, Elsevier, vol. 27(3), pages 417-447, March.
- Joseph P. Hughes & William W. Lang & Loretta J. Mester & Choon-Geol Moon & Michael S. Pagano, 2002. "Do bankers sacrifice value to build empires? managerial incentives, industry consolidation, and financial performance," Working Papers 02-2, Federal Reserve Bank of Philadelphia.
- William Lang & Choon-Geol Moon & Loretta Mester & Joseph Hughes & Michael Pagano, 2001. "Do Bankers Sacrifice Value to Build Empires? Managerial Incentives, Industry Consolidation, and Financial Performance," Departmental Working Papers 200117, Rutgers University, Department of Economics.
- Rotheli, Tobias F., 2001. "Competition, herd behavior, and credit cycles: evidence from major Swiss Banks," Journal of Economics and Business, Elsevier, vol. 53(6), pages 585-592.
- Tobias Adrian & Hyun Song Shin, 2009.
"The shadow banking system: implications for financial regulation,"
382, Federal Reserve Bank of New York.
- Adrian, T. & Shin, H S., 2009. "The shadow banking system: implications for fi nancial regulation," Financial Stability Review, Banque de France, issue 13, pages 1-10, September.
- Buiter, Willem H., 2007. "Lessons from the 2007 Financial Crisis," CEPR Discussion Papers 6596, C.E.P.R. Discussion Papers.
- Jose A. Lopez, 2008. "What is liquidity risk?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct24.
- Ben S. Bernanke, 2008. "Risk management in financial institutions," Proceedings 1070, Federal Reserve Bank of Chicago.
When requesting a correction, please mention this item's handle: RePEc:eee:soceco:v:39:y:2010:i:2:p:119-126. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.