From hubris to nemesis: Irish banks, behavioural biases and the crisis

Michael Dowling and Brian Lucey

Journal of Risk Management in Financial Institutions, 2014, vol. 7, issue 2, 122-133

Abstract: The collapse of the Irish economy, still ongoing after 5 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 the over-lending during the ‘Celtic Tiger’ years that fuelled the excessive growth in credit and subsequent banking implosion, eventually resulting in all Irish banks ending in state ownership. The causes of the Irish banking sector collapse are approached from a behavioural perspective of the role of Boards of Directors in bank risk management and then proceed to explore the likely presence of behavioural biases among senior executives in Irish banks. The Irish context provides a pertinent case study of what can happen when hubris and associated behavioural biases take control of a bank's risk management strategy.

Keywords: behavioural finance; risk management; banking; Ireland; Board of Directors; financial crisis (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:aza:rmfi00:y:2014:v:7:i:2:p:122-133

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