Why Do Bank Boards Have Risk Committees?
Charles A. Dice Center Working Paper No. 2021-12
55 Pages Posted: 27 Jul 2021 Last revised: 10 Jan 2022
Date Written: July 26, 2021
We develop a theory of bank board risk committees that explains why such committees can be valuable to shareholders even when they do not reduce bank risk. 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.
Keywords: Corporate Governance, Risk Committee, Bank Boards, Qualitative Research, Dodd-Frank
JEL Classification: G34
Suggested Citation: Suggested Citation