Bank Herding and Incentive Systems as Catalysts for the Financial Crisis

The IUP Journal of Behavioral Finance, Vol. VII, Nos. 1 & 2, pp. 30-58, March & June 2010

Posted: 30 Mar 2010

See all articles by Peter R. Haiss

Peter R. Haiss

WU Vienna University of Economics and Business; UniCredit Bank Austria; IES Vienna - Institute for the International Education of Students

Multiple version iconThere are 2 versions of this paper

Date Written: March 25, 2010

Abstract

Why do good bankers sometimes respond with the same disastrous strategies? Rooted in regulatory economics and behavioral finance, the paper offers a taxonomy of effects that narrows the scope of the banks’ decision making into a funnel-shape and thus, prepares the ground for a financial crisis. The basic message of the paper is that inconsistent decision rules, rigid bank regulations, stakeholder-focused incentive structures within banks and uncritical adoption of innovations may force banks into decisions that are micro-functional, but macro-dysfunctional. Behavioral aspects play a key role in the suggested remedies on the regulatory side (macroprudential regulation, supervision of incentives) and on the banking side (proper reward systems and structured decision making) to re-establish prudent banking.

Suggested Citation

Haiss, Peter R., Bank Herding and Incentive Systems as Catalysts for the Financial Crisis (March 25, 2010). The IUP Journal of Behavioral Finance, Vol. VII, Nos. 1 & 2, pp. 30-58, March & June 2010, Available at SSRN: https://ssrn.com/abstract=1578226

Peter R. Haiss (Contact Author)

WU Vienna University of Economics and Business ( email )

Institute for Production Management
Welthandelsplatz 1
Vienna, A-1020
Austria
++43-660 4848254 (Phone)
++43-50505 8944214 (Fax)

UniCredit Bank Austria ( email )

Rothschildplatz 1
Vienna, A-1020
Austria
++43-(0)50505 44214 (Phone)
++43-(0)50505 89 44214 (Fax)

HOME PAGE: http://www.bankaustria.com

IES Vienna - Institute for the International Education of Students

Johannesgasse 7
Vienna, A-1010
Austria

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
587
PlumX Metrics