How to Evaluate Risk Management Units?

Posted: 21 Mar 2018

See all articles by Michael Gelman

Michael Gelman

Alfred Lerner College of Business and Economics, The University of Delaware; Wharton School, University of Pennsylvania (visiting)

Doron Greenberg

Ariel University - Department of Economics and Business Administration

Mosi Rosenboim

Ben-Gurion University of the Negev

Date Written: March 19, 2018

Abstract

Risk management interacts with risk culture and both shape the bank's level of risk. We suggest that the risk management unit (RMU) is one possible mechanism through which they may interact. The financial crisis of 2008 emphasized the importance of risk management in financial institutions and the importance of the risk management unit (RMU). Despite the growing importance of the RMU, to date, there is no measure in the academic literature for evaluating its performance. We created a risk management unit index (RMUI) using a list of parameters that evaluate the functionality of the unit based on the current relevant literature. The RMUI transforms non-quantitative parameters into a simple and convenient index, allowing comparisons between RMUs. We found a positive association between the RMUI and the bank's risk management process as well as its risk culture characteristics, and a negative relationship to the number of past banking crises.

Keywords: Chief Risk Officer, Enterprise Risk Management, Risk Culture, Risk Management Unit, Risk Regulation

JEL Classification: G21, G28, G32, G33

Suggested Citation

Gelman, Michael and Greenberg, Doron and Rosenboim, Mosi, How to Evaluate Risk Management Units? (March 19, 2018). Available at SSRN: https://ssrn.com/abstract=3143872 or http://dx.doi.org/10.2139/ssrn.3143872

Michael Gelman (Contact Author)

Alfred Lerner College of Business and Economics, The University of Delaware; Wharton School, University of Pennsylvania (visiting) ( email )

20 Orchard Rd
United States

Doron Greenberg

Ariel University - Department of Economics and Business Administration ( email )

Israel

Mosi Rosenboim

Ben-Gurion University of the Negev ( email )

Be'er Sheva
8410501
Israel

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