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

Abstract

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.

CEO chairman controversy: evidence from the post financial crisis period

“…The adoption of board level Risk Appetite frameworks is collected from Risk Committee charters, generating a one (or zero) dummy variable. Gontarek and Belghitar (2018) find a robust relationship for risk governance mechanisms and lower risk-taking.…”

“…Following Dupire and Slagmulder (2018), Risk Committee Charters are collected in this study (on-line) to note the adoption of a risk appetite framework. BHCs which formally approve Risk Appetite arrangements are assigned a dummy value of one, following Gontarek and Belghitar (2018). In this study, Risk Appetite is adopted across 25% of the sample, versus 46% in Dupire and Slagmulder (2018).…”

“…Using data from Barth and Sau (2015) to identify US BHCs which are SIFIs, this study now delimits SIFIs from non-SIFIs and estimates a horserace regression between the two subgroups of BHCs. SIFIs are different from non-SIFIs in that they are subject to greater supervisory scrutiny and board-level arrangements, such as stress tests and the adoption of a Risk Committee, Risk Appetite and CRO related requirements (Federal Register 2014a and b, Barth 2015; Gontarek and Belghitar 2018). Table 8 reports the results of this analysis, reporting ten columns of output, five models for those BHCs designated as SIFIs and five models for those BHCs designated as non-SIFIs.…”

“…Deposits % Measured as total deposits divided by total assets as collected from Bloomberg. Risk appetite % Existence of risk appetite arrangements at the BHC board levels is hand-collected from BHC risk committee charters collected on-line, following Gontarek and Belghitar (2018). This variable assigns a dummy one (zero) if the board must explicitly approve BHC risk appetite.…”

The effect of shariah board characteristics, risk-taking, and maqasid shariah on an Islamic bank’s performance

“…Shahzad et al (2019) provide evidence that corporate risk-taking harms the performance of listed companies in Shanghai. Fang et al (2019) and Gontarek and Belghitar (2018) find a positive relationship between risk-taking and performance in US-bank holding companies.…”