Examining risk governance practices in global financial institutions: the adoption of risk appetite statements

Gontarek, Walter; Bender, Ruth

doi:10.1057/s41261-018-0067-2

Cited by 12 publications

(14 citation statements)

References 13 publications

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“…There is little doubt that banks require a strong and knowledgeable board (Greuning & Bratonovic, ). Catering for enhanced risk governance practices including risk appetite impacts the remit and duties of BHC directors and other governance actors (Alix, ; Banking Exchange, ; Fischer, ; Gontarek & Bender, ). Our research suggests rather than observable features of the risk committee (its size or expertise levels, for example), it is the activities performed within these board forums (such as the articulation of risk appetite) that may better explain improvements to selected BHC outcome measures.…”

Section: Resultsmentioning

confidence: 99%

“…Competent and effective risk oversight by the board of directors is critical to balancing agency conflicts (John & Senbet, ; O'Sullivan & Kinsella, 2011). Thus, boards require effective processes to carry out their responsibility of internal monitoring over this risk and reward trade‐offs (Chen & Lin, ; Ellul, ; Gontarek & Bender, ). While being regulated, banks are also subject to satisfying shareholder performance expectations, underscoring the need for a framework to balance risk‐related agency conflicts (de Andres & Valleldo, ; Maati & Maati‐Sauvez, ).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Competent and effective risk oversight by the board of directors is critical to balancing agency conflicts (John & Senbet, 1998;O'Sullivan & Kinsella, 2011). Thus, boards require effective processes to carry out their responsibility of internal monitoring over this risk and reward trade-offs (Chen & Lin, 2016;Ellul, 2015;Gontarek & Bender, 2018).…”

Section: Risk Governancementioning

confidence: 99%

“…Risk appetite is top management's assessment of the expected effect upon the bank's risk profile and valuation of taking on risky investments and activities (Stulz, ). Thus, risk appetite practices provide a framework for the board and senior management to improve internal monitoring activities in the post financial crisis environment (Gontarek & Bender, ).…”

Section: Introductionmentioning

confidence: 99%

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Risk governance: Examining its impact upon bank performance and risk‐taking

Gontarek

Belghitar

2018

Financial Market

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As policy‐makers in the United States contemplate a relaxation of financial regulation, our study contributes to this dialogue by testing the veracity of heightened standards of risk governance activities for US bank holding companies (BHCs). Our study examines evidence relating to the adoption of these standards by BHCs following regulatory intervention. We find that board‐level risk appetite practices have a profound association upon BHC performance and tail risk. Our estimates show that BHCs which adopt risk appetite practices exhibit a significant improvement in headline performance and reduced tail risk measures. Our research is relevant to academics by identifying the significance of this risk governance practice which has been introduced by global regulators. For practitioners (including board members, risk managers, policy‐makers and regulators), our study validates the efficacy of risk appetite frameworks as the future shape of financial regulation is being actively debated in the US.

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Section: Resultsmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Risk Governancementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Risk governance: Examining its impact upon bank performance and risk‐taking

Gontarek

Belghitar

2018

Financial Market

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“…Risk Committee is measured as one (or zero) dummy upon the existence of this forum (Hines and Peters 2015). Establishing firm-wide risk appetite levels is an important role of the Risk Committee (Sabato 2009;Gontarek and Bender 2018). Bank Director reports that 94% of US banks with assets greater than $10 billion validate that establishing risk appetite is a key aim of the risk committee.…”

Section: Inclusion Of Enhanced Governance Practices and Mitigation Ofmentioning

confidence: 99%

CEO chairman controversy: evidence from the post financial crisis period

Gontarek

Belghitar

2020

Rev Quant Finan Acc

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Regulators generally discourage bank CEOs also holding the role of board Chairman, as this governance structure can hinder independent decision-making and effective risk oversight. This study examines the issue of CEO Duality, identifying a positive relation to greater risk-taking across a battery of sensitivity tests. In further analysis, the study controls for differences in supervisory monitoring levels to examine its impact. Banks led by CEO Chairmen which are subject to lower levels of supervision continue to report a robust association to risk-taking, as before. However, this association dissipates for banks which are subject to heightened supervisory monitoring. These findings indicate that agency costs related to Duality may be moderated by greater regulation. This paper weighs-in on the controversy relating to a single contentious governance structure (i.e., CEO Duality), thus informing boards, regulators and researchers of the need to consider the overall interplay of monitoring mechanisms.

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