Banking crisis

Unraveling the origins of a banking crisis: changing perceptions of risk and managerial beliefs in Dutch banking, 1957-2007

A big issue

The current banking crisis asks for a deeper understanding of its causes. Most research focuses on recent years directly preceding the crisis, meaning that policies addressing the crisis and preventing its recurrence will also be based on a short-term analysis. The real causes of the crisis are the result of a long process in which banks changed from risk avoidance to risk seeking. This was not a clear-cut process, but a complex interaction of institutions and beliefs that influenced the banking business in general and perceptions about how to manage banks and risk in particular.

Performativity

The proposed project aims to unravel the long-term origins of the recent crisis, by focusing on the underlying drivers of these changes through an in-depth examination of the beliefs of the main actors. Such a study of belief systems is based on the notion of “performativity”, which suggests that the language of science, in this case economic science, not only describes how markets and organizations work, but also influences and frames them.  

Beliefs percolating the organization

After examining changes in banking strategies and performance, the project analyzes these belief systems in three steps: (i) the adoption of beliefs about “manageable” risk by top bankers and how this influenced bank strategies and institutions, (ii) the effect of these changing beliefs on the internal bank organizations, with an emphasis on the decentralization of decision-making and HRM policies; and (iii) the belief in mathematical models to manage risks and its effect on internal risk management practices.  

The Dutch banking sector

The project is based on a study of the Dutch banking sector since the late 1950s. It will track the actual changes based on longitudinal data and examine the main actors and institutions driving these changes, relying on archival research and interviews to uncover the underlying beliefs behind their actions.

More information

Gerarda Westerhuis was awarded a VENI grant from the Dutch Organization for Scientific Research (NWO) to conduct this research project. For more information you should contact her: g.k.westerhuis@uu.nl