Measuring enterprise risk management implementation: A multifaceted approach for the banking sector

This paper contends that the use of alternative constructs as Enterprise Risk Management (ERM) measures has made a partial contribution to the different and contradictory results provided by various empirical studies. It further argues that the comprehensive nature of Enterprise Risk Management implies that its adoption and implementation affect different aspects of firms and, therefore, the most appropriate construct to measure it should be equally comprehensive in order to capture all possible signals, outputs and effects from the features of a firm. Secondly, the specialised nature of banking operations and the associated risk necessitates risk measures that suit the peculiarities of the sector and in this study we have proposed banking sector specific ERM model. In this regard, we propose a comprehensive methodology and multifaceted approach to determining ERM measures for the banking sector, taking cognisance of the various components of ERM and the specific needs of the sector. In our proposed comprehensive methodology for determining ERM measures for the banking sector, we combined two important models: the ERM model for the banking sector and the CAMELS model for assessing the performance of banks. The integration of these two models provides a comprehensive and all-encompassing approach for determining ERM measures for the banking sector. Our model is novel and offers a significant contribution to the literature of bank risk management. Our model provides a comprehensive risk management framework for bank executives, bank risk managers, the board members of banks, central banks and the authorities responsible for financial sector stability.