The Faculty of Arts and Science News recently featured an article highlighting Professor Kim Pernell’s research involving the risk-taking behaviour of Chief Risk Officers. Professor Pernell is the Canada Research Chair in Economic Sociology. Her research looks at the causes and implications of risky behaviour in financial markets.
We have posted an excerpt of the article below.
Hiring risk executives to protect U.S. banks backfired, contributing to 2008 crash: U of T study
July 18, 2017
When America’s major banks created executive positions to reduce exposure to financial risk more than a decade ago, their intent was similar to an employer who designates a fire warden to protect a workplace against smoke and flames.
However, the unintended consequence was like giving the fire warden job to a pyromaniac.
“The hiring of chief risk officers was expected to reduce risky behaviour and mitigate the likelihood of insolvency, or at the very least protect bank executives from going to jail,” said Kim Pernell, Canada Research Chair in Economic Sociology at U of T and lead author of a new study published in American Sociological Review. “The move instead led to increases in the kind of risky behaviour that helped lead Wall Street into the 2008 financial crash, the biggest since the Great Depression.”