We present a model in which a long-lived bank endogenously learns about the environment for financial innovation through experimentation on its clients. When the bank has superior knowledge of the state of the world facing its clients, it may engage in inefficient or "reckless" experimentation...

On April 16, 2010 the Securities and Exchange Commission (SEC) filed a civil complaint against Goldman Sachs in the U.S. District Court for the Southern District of New York. The complaint alleged that Goldman violated the anti-fraud provisions of the federal securities laws, in connection with...