Reckless endangerment: The failure of HBOS

Patrick Mcconnell
Additional contact information
Patrick Mcconnell: Senior Manager, Australia

Journal of Risk Management in Financial Institutions, 2014, vol. 7, issue 2, 202-215

Abstract: In 2004, UK banking regulators reportedly told the Board of Halifax/Bank of Scotland (HBOS) that their chosen growth strategy was an ‘accident waiting to happen’3. Just four years later, the accident happened and HBOS collapsed under a mountain of debt, requiring the injection of some £20bn of taxpayers' support. The UK parliamentary inquiry into the HBOS collapse labelled the bank's strategy ‘incompetent and reckless’. This paper looks at the failure of HBOS using a behavioural finance perspective, in particular considering the cognitive biases (such as over-confidence and groupthink) that may have led directors to underestimate the seriousness of the bank's situation. In its final report, the UK parliamentary inquiry into banking standards recommended that a new criminal offence be created to cover reckless behaviour by senior bankers. The paper considers how such reckless behaviour might be detected and managed before (rather than after) it leads to bank failure.

Keywords: behavioural finance; Halifax Bank of Scotland; reckless behaviour; overconfidence; groupthink (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
https://hstalks.com/article/2217/download/ (application/pdf)
https://hstalks.com/article/2217/ (text/html)
Requires a paid subscription for full access.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aza:rmfi00:y:2014:v:7:i:2:p:202-215

Access Statistics for this article

More articles in Journal of Risk Management in Financial Institutions from Henry Stewart Publications
Bibliographic data for series maintained by Henry Stewart Talks ().