The Existence and Role of Bank Risk Committees Around the Global Financial Crisis

This chapter examines the dynamics of bank governance and risk management, specifically examining the relationship between Risk Committees (RCs) and Total Capital Ratio (TCR) in U.S. and European public banks during the Global Financial Crisis (GFC) from 2006 to 2010. Using data from Bank Focus and BoardEx, we explore how RCs impact banks’ financial stability and risk appetite, as reflected in their TCR. The analysis integrates various governance factors, including CEO duality, board composition, and executive compensation, to understand their interplay with risk management. Key findings indicate a positive association between the presence of RCs and TCR, suggesting that RCs enhance a bank's risk management capabilities. This influence is more pronounced during the GFC, highlighting the critical role of RCs in times of financial stress. The mixed evidence regarding CEO duality and board size underlines the complexity of effective bank governance structures. We contribute to the broader understanding of bank governance mechanisms, offering insights for policymakers and banking sector stakeholders in shaping robust governance frameworks to fortify financial stability, especially during economic crises.