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

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  • Walter Gontarek

    (Cranfield School of Management)

  • Ruth Bender

    (Cranfield School of Management)

Abstract

Heightened risk governance standards have become increasingly prevalent in financial institutions following the global financial crisis, apportioning greater responsibilities upon board directors. One such responsibility of the board is the requirement to formally articulate and monitor firm-wide risk appetite. For the first time, this study probes the risk appetite practices of global financial institutions, collected through a series of semi-structured interviews with risk governance actors. We find that the practice of establishing firm-wide risk appetite has a profound impact upon firms’ activities. Before the crisis, many boards lacked a clear understanding of risk profiles, limiting effective internal monitoring. Following the adoption of risk appetite, firms appear to improve monitoring and take into account aggregate risk levels. Moreover, there are signs that the cascading of risk appetite may contribute to improved risk conduct levels. This research is relevant to academics, providing insight for research into this emerging board-level practice. For practitioners, this study offers a unique lens to benchmark their monitoring activities for the first time.

Suggested Citation

  • Walter Gontarek & Ruth Bender, 2019. "Examining risk governance practices in global financial institutions: the adoption of risk appetite statements," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(1), pages 74-85, March.
    • Handle: RePEc:pal:jbkreg:v:20:y:2019:i:1:d:10.1057_s41261-018-0067-2
    DOI: 10.1057/s41261-018-0067-2
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    References listed on IDEAS

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    Cited by:

    1. Tiffany Eder & Claire Labonne & Caitlin O'Loughlin & Krish Sharma, 2024. "Managing Risk in Cards Portfolios: Risk Appetite and Limits," Supervisory Research and Analysis Working Papers 24-01, Federal Reserve Bank of Boston.
    2. Safa Jallali & Faten Zoghlami, 2022. "Does risk governance mediate the impact of governance and risk management on banks’ performance? Evidence from a selected sample of Islamic banks," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 30(4), pages 439-464, February.
    3. Stanley Chege & Gregory Wanyembi & Constantine Nyamboga, 2023. "Enterprise Risk Management Practices in Kenya," Journal of International Business Research and Marketing, Inovatus Services Ltd., vol. 8(1), pages 15-26, April.

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