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Getting Risk Governance Right

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Abstract

This paper sets out the criteria that boards and supervisors should use to determine whether banks are governing risk correctly. First, boards have to set an overall risk target consistent with the overall return target. Second, the bank’s business model has to set a risk capacity and risk appetite that can enable the bank to meet its target for risk and return. Finally, the bank has to ensure that its three lines of defense (management, risk management and compliance, and internal audit) function well, both singly and in combination.

Suggested Citation

  • Huertas, Thomas, 2013. "Getting Risk Governance Right," Journal of Financial Perspectives, EY Global FS Institute, vol. 1(1), pages 75-83.
  • Handle: RePEc:ris:jofipe:0010
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    More about this item

    Keywords

    Risk; Regulation; Risk Governance; Banks; Risk Targets; Risk Capacity; Compliance;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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