Working Paper: NBER ID: w29106
Authors: Ren M. Stulz; James G. Tompkins; Rohan Williamson; Zhongxia Shelly Ye
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: No keywords provided
JEL Codes: G21; G28; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Having a well-functioning risk committee (G38) | Decrease in bank risk-taking (G21) |
| Establishment of a risk committee (G38) | Reduced risk-taking (D91) |
| Risk committees facilitate better monitoring of risk-taking (G38) | Optimal risk levels that maximize shareholder wealth (G32) |
| Risk committees may serve as a means for regulators to exert influence over bank risk-taking (G28) | Influence on bank risk-taking (G21) |