Impact of Risk Oversight Functions on Bank Risk: Evidence from the Dodd-Frank Act

Abstract

We document the impact of having a risk committee (RC) and a chief risk officer (CRO) on bank risk using the passage of the Dodd Frank Act as a natural experiment.  The Act requires bank holding companies with over $10B of assets to have an RC to oversee risk management, while those with over $50B of assets are additionally required to have a CRO.  We use difference-in-difference and regression discontinuity approaches to estimate the change in risk following RC and CRO adoption. Overall, we find no evidence that the RC or CRO have a causal impact on bank risk.

Keywords: Bank holding companies, Risk, Chief risk officer, Risk Committee, Dodd Frank Act, Bank risk, Corporate Governance