Why do Bank Boards have Risk Committees?
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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Copy CitationRené M. Stulz, James G. Tompkins, Rohan Williamson, and Zhongxia (Shelly) Ye, "Why do Bank Boards have Risk Committees?," NBER Working Paper 29106 (2021), https://doi.org/10.3386/w29106.
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