Why Do Bank Boards Have Risk Committees?

Why Do Bank Boards Have Risk Committees?

René Stulz, James Tompkins, Rohan Williamson, Zhongxia (Shelly) Ye

Series number :

Serial Number: 
779/2021

Date posted :

August 17 2021

Last revised :

August 17 2021
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Keywords

  • Corporate governance • 
  • Risk Committee • 
  • Bank boards • 
  • risk management • 
  • Dodd-Frank

We develop a theory of bank board risk committees. With this theory, such committees are valuable even though there is no expectation that bank risk is lower if the bank has a well-functioning risk committee.

As predicted by our theory (1) many large and complex banks voluntarily chose to have a risk committee before the Dodd-Frank Act forced bank holding companies with assets in excess of $10 billion to have a board risk committee, and (2) establishing a board risk committee does not reduce a bank’s risk on average. Using unique interview data, we show that the work of risk committees is consistent with our theory in part.

Authors

Real name:
Zhongxia (Shelly) Ye
Real name:
James Tompkins
Real name:
Rohan Williamson