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Why Do Bank Boards Have Risk Committees?

Author

Listed:
  • Stulz, Rene M.

    (Ohio State University and European Corporate Governance Institute)

  • Tompkins, James G.

    (Kennesaw State University)

  • Williamson, Rohan

    (Georgetown University)

  • Ye, Zhongxia Shelly

    (University of Texas at San Antonio)

Abstract

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.

Suggested Citation

  • Stulz, Rene M. & Tompkins, James G. & Williamson, Rohan & Ye, Zhongxia Shelly, 2021. "Why Do Bank Boards Have Risk Committees?," Working Paper Series 2021-12, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2021-12
    DOI: 10.2139/ssrn.3893882
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    Cited by:

    1. Ding, Bin Yan & Wei, Feng, 2023. "Overlapping membership between risk management committee and audit committee and bank risk-taking: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 86(C).
    2. Balasubramanyan, Lakshmi & Daniel, Naveen D. & Haubrich, Joseph G & Naveen, Lalitha, 2024. "Impact of risk oversight functions on bank risk: Evidence from the Dodd-Frank Act," Journal of Banking & Finance, Elsevier, vol. 158(C).

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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