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The Place of Risk Management in Financial Institutions

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  • George S. Oldfield
  • Anthony M. Santomero

Abstract

The purpose of this paper is to address two issues. It defines the appropriate role played by institutions in the financial sector and focuses on the role of risk management in firms that use their own balance sheets to provide financial products. A key objective is to explain when risks are better transferred to the purchaser of the assets issued or created by the financial institution and when the risks of these financial products are best absorbed by the firm itself. However, once these risks are absorbed, they must be efficiently managed. So, a second part of the current analysis develops a framework for efficient and effective risk management for those risks which the firm chooses to manage within its balance sheet. The goal of this activity is to achieve the highest value added from the risk management undertaken.

Suggested Citation

  • George S. Oldfield & Anthony M. Santomero, 1997. "The Place of Risk Management in Financial Institutions," Center for Financial Institutions Working Papers 95-05, Wharton School Center for Financial Institutions, University of Pennsylvania.
    • Handle: RePEc:wop:pennin:95-05
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    References listed on IDEAS

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    11. Anthony M. Santomero, 1997. "Commercial Bank Risk Management: An Analysis of the Process," Center for Financial Institutions Working Papers 95-11, Wharton School Center for Financial Institutions, University of Pennsylvania.
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    14. David F. Babbel & Anthony M. Santomero, 1997. "Risk Management by Insurers: An Analysis of the Process," Center for Financial Institutions Working Papers 96-16, Wharton School Center for Financial Institutions, University of Pennsylvania.
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    Cited by:

    1. Allen, Franklin & Santomero, Anthony M., 1997. "The theory of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1461-1485, December.
    2. Akhigbe, Aigbe & Martin, Anna D., 2008. "Influence of disclosure and governance on risk of US financial services firms following Sarbanes-Oxley," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2124-2135, October.
    3. Peter F. Christoffersen & Francis X. Diebold, 2000. "How Relevant is Volatility Forecasting for Financial Risk Management?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 12-22, February.
    4. Mohd Afandi Abu Bakar & Noormahayu Mohd Nasir & Farrah Dina Abd Razak & Nor Samsinar Kamsi & Abdul Malek A. Tambi, 2017. "Liquidity Management and The Islamic Bank Financing Constraints," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(12), pages 127-138, December.
    5. Bismark Von Tamakloe & Alexander Boateng & Eric Teye Mensah & Daniel Maposa, 2023. "Impact of Risk Management on the Performance of Commercial Banks in Ghana: A Panel Regression Approach," JRFM, MDPI, vol. 16(7), pages 1-12, July.
    6. Anthony M. Santomero, 1997. "Commercial Bank Risk Management: An Analysis of the Process," Center for Financial Institutions Working Papers 95-11, Wharton School Center for Financial Institutions, University of Pennsylvania.
    7. Premti, Arjan & Garcia-Feijoo, Luis & Madura, Jeff, 2017. "Information content of analyst recommendations in the banking industry," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 35-47.
    8. Anthony Santomero, 1997. "Commercial Bank Risk Management: An Analysis of the Process," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(2), pages 83-115, October.
    9. Matousek, Roman & Nguyen, Thao Ngoc & Stewart, Chris, 2016. "Risk management of the Vietnamese banking system: A market research survey," Economics Discussion Papers 2016-10, School of Economics, Kingston University London.
    10. Giorgio Di Giorgio & Carmine Di Noia & Laura Piatti, 2000. "Financial Market Regulation: The Case of Italy and a Proposal for the Euro Area," Center for Financial Institutions Working Papers 00-24, Wharton School Center for Financial Institutions, University of Pennsylvania.
    11. Giorgio Di Giorgio & Carmine Di Noia, 2001. "Financial Regulation and Supervision in the Euro Area: A Four-Peak Proposal," Center for Financial Institutions Working Papers 01-02, Wharton School Center for Financial Institutions, University of Pennsylvania.
    12. Akhigbe, Aigbe & Martin, Anna D., 2006. "Valuation impact of Sarbanes-Oxley: Evidence from disclosure and governance within the financial services industry," Journal of Banking & Finance, Elsevier, vol. 30(3), pages 989-1006, March.
    13. Armin J. Kammel, 2005. "A Proposal for the Governance of Financial Regulation and Supervision in Europe," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(4), pages 167-181.
    14. Naseem Al Rahahleh & M. Ishaq Bhatti & Faridah Najuna Misman, 2019. "Developments in Risk Management in Islamic Finance: A Review," JRFM, MDPI, vol. 12(1), pages 1-22, February.
    15. Trappey, Charles V. & Shih, Tsui-Yii & Trappey, Amy J.C., 2007. "Modeling international investment decisions for financial holding companies," European Journal of Operational Research, Elsevier, vol. 180(2), pages 800-814, July.

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