From Hubris to Nemesis: Irish Banks, Behavioral Biases, and the Crisis

Published as: Dowling, M. and B. Lucey. (2014). “From Hubris to Nemesis: Irish Banks, Behavioral Biases, and the Crisis”, Journal of Risk Management in Financial Institutions, vol 7(2)

16 Pages Posted: 27 Sep 2013 Last revised: 10 Feb 2014

See all articles by Michael M. Dowling

Michael M. Dowling

ESC Rennes School of Business

Brian M. Lucey

Trinity Business School, Trinity College Dublin; University of Sydney Business School; Ho Chi Minh City University of Economics and Finance

Date Written: September 26, 2013

Abstract

The collapse of the Irish economy, still ongoing after five years, has its roots firmly in the banking sector. Lax risk management, aided by poor board oversight and behavioral biases among senior executives, is now viewed as one of the primary causes of the over-lending during the ‘Celtic Tiger’ years which fueled the excessive growth in credit and subsequent banking implosion, eventually resulting in all Irish banks ending in state ownership. We approach the causes of the Irish banking sector collapse from a behavioural perspective of the role of Boards of Directors in bank risk management, and then proceed to explore the likely presence of behavioral 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: hubris, CEO, behavioral, overconfidence, banks, crisis, Ireland

JEL Classification: G21, E44, G34

Suggested Citation

Dowling, Michael M. and Lucey, Brian M., From Hubris to Nemesis: Irish Banks, Behavioral Biases, and the Crisis (September 26, 2013). Published as: Dowling, M. and B. Lucey. (2014). “From Hubris to Nemesis: Irish Banks, Behavioral Biases, and the Crisis”, Journal of Risk Management in Financial Institutions, vol 7(2) , Available at SSRN: https://ssrn.com/abstract=2331185 or http://dx.doi.org/10.2139/ssrn.2331185

Michael M. Dowling

ESC Rennes School of Business ( email )

Rue Robert d'arbrissel, 2
Rennes, 35000
France

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Ho Chi Minh City University of Economics and Finance ( email )

59C Nguyen Dình Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

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