Banks, knowledge and crisis: a case of knowledge and learning failure

John Holland, Robert Watson
2010 Journal of Financial Regulation and Compliance  
Regulators such as Turner (2009) have identified excessive securitization, high leverage, extensive market trading and a bonus culture, as being major factors in bringing about the bank centred financial crisis of 2007-9. The core idea of this paper is, however, that a lack of banking knowledge and history amongst bank board directors, top management and regulators was also deeply implicated in the crisis and addressing this knowledge gap and its causes will be part of the solution to the
more » ... . The knowledge problems concerned banks' understanding of their organisation, intermediation and risk management in an active market setting and during rapid change. Though much was known before the crisis, the failing banks ignored or were unaware of this knowledge and also experienced acute difficulties with learning the new knowledge needed to address the new problems thrown-up by the financial crisis. The paper develops a framework for understanding the role and application of knowledge in banking and suggests how banks can institutionalise learning and actively create new knowledge through time to improve bank organisation, intermediation, and risk management. This knowledge forms the core of a bank's sustainable competitive advantage (SCA) and it is argued that the institutionalisation of banking knowledge ought to constitute an important element of any sustainable solution to the problems currently being experienced by the banking sector. By ensuring greater bank learning, knowledge creation, and knowledge use, governments and regulators could help reduce individual bank risk and the likelihood of future crisis.
doi:10.1108/13581981011033961 fatcat:bs5rwu5r6bfavl3nfmqyqmngwi