When and why do collective heuristics perform well? The case of the interbank market

Abstract

This study explains how senior bank managers in two of the worlds' 100 greatest banks act and react on the interbank market. Interviews with senior managers revealed that top management was continuously monitoring other banks. As a crisis appeared to be unfolding, top executives took a step forward and withdrew credit to certain other banks, sidestepping the formal hierarchical credit process used in normal times. This behaviour enabled fast action - a necessity in time-limited crises. Their fast action meant that the two banks had none of the losses experienced in other banks during the global financial crisis of 2007-2009.