Why do Bank Boards have Risk Committees? / René M. Stulz, James G. Tompkins, Rohan Williamson, Zhongxia (Shelly) Ye.

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Stulz, René M

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w29106.Publication details: Cambridge, Mass. National Bureau of Economic Research 2021.Description: 1 online resource: illustrations (black and white)Subject(s):

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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.

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July 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.