Final answer:
Banks in the 1980s experienced significant losses primarily due to failing to diversify their loan portfolios, which left them vulnerable to economic downturns in specific sectors they specialized in.
Step-by-step explanation:
Banks that suffered significant losses in the 1980s made the mistake of failing to diversify their loan portfolio. Diversification is a key strategy for banks to manage risk. By spreading loans across various customers in different industries and geographic areas, banks are less vulnerable to defaults occurring in any single sector. When a bank does not diversify, it is at risk of suffering large losses if the niche market it specializes in encounters an economic downturn. Despite other strategies for risk management, such as holding a greater share of assets in bonds and reserves, without diversification, a widespread recession can significantly harm a bank's net worth.