Why Do Bank Boards Have Risk Committees?

57 Pages Posted: 27 Jul 2021 Last revised: 16 Aug 2021

See all articles by René M. Stulz

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

James G. Tompkins

Kennesaw State University - Michael J. Coles College of Business

Rohan Williamson

Georgetown University - McDonough School of Business

Zhongxia Shelly Ye

The University of Texas at San Antonio

Date Written: July 26, 2021

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.

Keywords: Corporate Governance, Risk Committee, Bank Boards, Risk Management, Dodd-Frank

JEL Classification: G21, G28, G34

Suggested Citation

Stulz, Rene M. and Tompkins, James G. and Williamson, Rohan G. and Ye, Zhongxia Shelly, Why Do Bank Boards Have Risk Committees? (July 26, 2021). Fisher College of Business Working Paper No. 2021-03-012, Charles A. Dice Center Working Paper No. 2021-12, European Corporate Governance Institute – Finance Working Paper No. 779/2021, Available at SSRN: https://ssrn.com/abstract=3893882 or http://dx.doi.org/10.2139/ssrn.3893882

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI)

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Belgium

James G. Tompkins

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Department of Economics and Finance
Kennesaw, GA 30144
United States
770-499-3326 (Phone)
770-499-3209 (Fax)

Rohan G. Williamson

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2284 (Phone)
202-687-4031 (Fax)

Zhongxia Shelly Ye

The University of Texas at San Antonio

ONE UTSA Circle
San Antonio, TX 78249
United States

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