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

53 Pages Posted: 24 Aug 2010 Last revised: 23 Nov 2010

Richard W. Painter

University of Minnesota Law School

Wulf A. Kaal

University of St. Thomas, Minnesota - School of Law

Date Written: February 24, 2010

Abstract

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.

Keywords: Financial Crisis, Risk Taking, Excessive Risk, Germany, United States, Comparative Law, Economic Analysis, Cost Benefit, Social Externalities

Suggested Citation

Painter, Richard W. and Kaal , Wulf A., Initial Reflections on an Evolving Standard: Constraints on Risk Taking by Directors and Officers in Germany and the United States (February 24, 2010). Seton Hall Law Review, Vol. 40, 2010. Available at SSRN: https://ssrn.com/abstract=1558614

Richard W. Painter

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-626-9707 (Phone)

Wulf A. Kaal (Contact Author)

University of St. Thomas, Minnesota - School of Law ( email )

MSL 400, 1000 La Salle Avenue
Minneapolis, MN Minnesota 55403-2005
United States

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