Banks overexposed themselves to private investment fund lending, which allowed LTCM and similar funds to grow significantly and led banks as counterparties to put their own existence at risk.
Source quote, verbatim
However, banks overexposed themselves to private investment fund lending, allowing LTCM and other private investment funds to grow significantly. As counterparties to private investment funds, such as LTCM, banks put their own existence at risk with their lending practices.
From
Wulf A. Kaal, Private Investment Fund Regulation - Theory and Empirical Evidence from 1998 to 2016 (2017), III. Failure of Long-Term-Capital Management, p. 11 https://ssrn.com/abstract=2998097 · source PDF
Cite as
Wulf A. Kaal, Private Investment Fund Regulation - Theory and Empirical Evidence from 1998 to 2016 (2017). SSRN: https://ssrn.com/abstract=2998097
Holds when
banks lending to private investment funds
pre 1998 lending practices
Classification
failuresupport: arguedfailure: Counterparty overexposure to private fundsfamily: systemic-risk-transmissionsystemic-riskdefirisk-and-incentives
Related claims
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supportskaal:claim:1806252-013 Because banks expect to be bailed out with taxpayer funds, they may have less incentive to monitor their hedge...
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