Why Do Bank Boards Have Risk Committees?
Charles A. Dice Center Working Paper No. 2021-12
57 Pages Posted: 27 Jul 2021 Last revised: 16 Aug 2021
Date Written: July 26, 2021
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.
Keywords: Corporate Governance, Risk Committee, Bank Boards, Risk Management, Dodd-Frank
JEL Classification: G21, G28, G34
Suggested Citation: Suggested Citation