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Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies
Andrew Ellul
Indiana University Bloomington - Department of Finance
Vijay Yerramilli
University of Houston, C. T. Bauer College of Business
August 31, 2012
Journal of Finance, Forthcoming
Abstract:
We construct a Risk Management Index (RMI) to measure the strength and independence of the risk management function at bank holding companies (BHCs). U.S. BHCs with higher RMI before the onset of the financial crisis have lower tail risk, lower non-performing loans, and better operating and stock return performance during the financial crisis years. Over the period 1995 to 2010, BHCs with a higher lagged RMI have lower tail risk and higher return on assets, all else equal. Overall, these results suggest that a strong and independent risk management function can curtail tail risk exposures at banks.
Number of Pages in PDF File: 70
Keywords: Risk Management, Tail Risk, Banks, Financial Crisis
JEL Classification: G21, G32
Accepted Paper Series
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Date posted: February 10, 2010
; Last revised: September 25, 2012
Suggested CitationEllul, Andrew and Yerramilli, Vijay, Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies (August 31, 2012). Journal of Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1550361 or http://dx.doi.org/10.2139/ssrn.1550361
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