Lehman Brothers' Failure as a Trigger for Financial Contagion

Delegation of Bank Regulation to Government Authorities

A large, systemically important bank, operating in an environment with minimal government oversight, is evaluating a new, highly profitable but very risky investment strategy. If the strategy succeeds, the bank's executives and shareholders will earn massive returns. If it fails, the bank could collapse, potentially triggering a widespread financial crisis. Why might the bank's management choose to proceed with this risky strategy?

Bank Incentives and Systemic Risk

Evaluating a Bank's Investment Decision

In an unregulated financial market, a bank's primary incentive is to manage the risks its activities pose to the overall economic stability.

Distinguishing Between Bank Risk Types

Predicting Bank Behavior in Different Regulatory Environments

Analyzing a Bank's Risk Perspective

Critique of a Free-Market Banking Argument

In an unregulated financial system, what underlying assumption most likely encourages multiple banks to simultaneously pursue high-risk strategies, even if they understand that a widespread failure could destabilize the entire economy?