Governance, Risk Management, and Risk-Taking in Banks

Abstract

The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Exploring the role of non-financial risk management in strategy processes of large retail banks

“…A key area where the literature and research findings were aligned was in relation to the dynamic of risk versus return in relation to non-financial risk. Stulz (2014) emphasised that risks that are not incurred with the expectation of a potential return are bad risks. This view followed the argument of Jobst (2007) who noted that, contrary to financial risks, operational risks are generally not willingly incurred nor do they have an offsetting revenue return.…”

“…Stulz (2014) and Tennyson (2013) argue that banking leaders on the board and executive committee are critical in instilling a sense of culture in regards to risk. Kulas, Komai, and Grossman (2013) and Power (2011) extend this discussion into the role of leadership in developing and implementing organisational change.…”

“…Various definitions of leadership emphasise the influencing role of leaders and their ability to enable change (Bass, 1985;Kouzes & Posner, 2003;Scheepers, 2012). Indeed, Stulz (2014) argues the role of leaders in risk management "is not to reduce the bank's total risk per se. It is to identify and measure the risks the bank is taking, aggregate these risks in a measure of the bank's total risk, enable the bank to eliminate, mitigate and avoid bad risks, and ensure that its risk level is consistent with its risk appetite" (Stulz, 2014: 1).…”

Rynek kapitałowy - szanse i bariery

“…The need for monitoring is especially salient within banks due to the high potential for information asymmetry, which arises between bank managers and its shareholders and between the bank and its external stakeholders (Stultz, 2014;IMF, 2014). This information asymmetry results in the potential for moral hazard and adverse selection problems (Jensen and Meckling, 1976;Ang et al, 2000), and therefore determines the risk-taking incentives of a bank.…”

“…Given these problems, rational owners and managers in these banks develop elaborate corporate governance structures which aim to reduce the side effects of this dispersed ownership. However, the externality of such structures is greater risk-taking (IMF, 2014;Stultz, 2014).…”