Internal risk governance and external capital regulation affecting bank risk-taking and performance: Evidence from P.R. China

In this paper, by means of econometric models, we investigate the relationship between risk governance and performance of the Eurozone’s Global Systemically Important Banks (G-SIBs), over the period 2014-2018. The results of the quantitative analysis show that the choice to appoint a Chief Risk Officer (CRO) can be useful to shrink the bank risk-taking. Furthermore, we find that the importance attributed by the bank to the CRO – in terms of membership of the board of directors and in terms of remuneration – is positively correlated to both profitability and bank risk-taking. In addition, the analysis shows that the activity carried out by the Risk committee can be helpful to break down the risks.

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Internal Control Quality and Bank Risk-Taking and Performance

Auditing A Journal of Practice & Theory ◽

10.2308/ajpt-19-037 ◽

2020 ◽

Author(s):

Matthew Baugh ◽

Matthew Ege ◽

Christopher G. Yust

Keyword(s):

Internal Control ◽

Risk Taking ◽

Downside Risk ◽

Internal Controls ◽

Bank Risk ◽

Material Weakness ◽

Control Quality ◽

Interest Income ◽

Upside Risk ◽

And Performance

Using a sample of bank-years from 2005 to 2017, we examine the effect of internal control quality on future risk-taking and performance. We find that banks that disclose a material weakness in internal controls have higher risk-taking and worse performance in the future, including having a higher (lower) likelihood of experiencing large losses (gains). These findings suggest that weak controls increase (reduce) downside (upside) risk-taking or conversely that strong controls increase (reduce) upside (downside) risk-taking. Path analyses suggest that 22.3 to 43.7 percent of the effect of internal control quality on future performance is through risk-taking. Additionally, material weaknesses are negatively associated with total asset, loan, interest income, and non-interest income growth, suggesting that internal control quality affects both core and non-core activities of banks. Overall, results suggest that strong internal controls improve bank risk-taking, in part through asymmetrically reducing downside risk-taking while facilitating upside risk-taking, ultimately improving bank performance.

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Capital regulation, competition and risk-taking behavior of Indian banks in a simultaneous approach

Managerial Finance ◽

10.1108/mf-09-2017-0340 ◽

2018 ◽

Vol 44 (4) ◽

pp. 459-477 ◽

Cited By ~ 2

Author(s):

Santi Gopal Maji ◽

Preeti Hazarika

Keyword(s):

Human Capital ◽

Risk Taking ◽

Value Added ◽

Capital Adequacy ◽

Bank Risk ◽

Capital Regulation ◽

Content Type ◽

Risk Taking Behavior ◽

Indian Banks ◽

The Impact

Purpose The purpose of this paper is to investigate the association between capital regulation and risk-taking behavior of Indian banks after incorporating the influence of competition. Further, the study intends to enrich the existing literature by providing empirical evidence on the role of human resources in managing risk along with the influence of other bank specific and macroeconomic variables. Design/methodology/approach Secondary data on 39 listed Indian commercial banks are collected from “Capitaline Plus” corporate data database for a period of 15 years. Capital is measured by capital adequacy ratio as defined by the regulators, and two definitions of risk – credit risk and insolvency risk – are employed. Competition is measured by Herfindahl-Hirschman deposits index, concentration ratio and H-statistic. The value-added intellectual coefficient model is employed to compute human capital efficiency (HCE). Three-stage least squares technique in a simultaneous equation framework is used to estimate the coefficients. Findings The study finds that absolute level of regulatory capital and bank risk are positively associated, although the influence of capital on risk is not statistically significant. The influence of competition on risk is negative for all the models, which supports the “competition stability” view. The impact of human capital on bank risk is also negative for all cases. Practical implications The findings of the study are useful for the decision makers in several ways based on the inverse influence of competition and HCE on bank risk. Further, the observed positive association between capital and risk indicates that the capital regulation is not sufficient to enhance the stability in the banking sector. Originality/value This is the first study in the Indian context that incorporates the competition in the banking industry as an explanatory variable in the extant bank capital and risk relationship.

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Bank risk-taking, risk-hedging and the effects of the risk-based bank capital regulation

Managerial Finance in the Corporate Economy ◽

10.4324/9780203984253-24 ◽

2005 ◽

pp. 213-224

Keyword(s):

Risk Taking ◽

Bank Risk ◽

Capital Regulation ◽

Bank Capital ◽

Risk Hedging ◽

Bank Capital Regulation

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Internal Model-Based Capital Regulation and Bank Risk-Taking Incentives

The Journal of Derivatives ◽

10.3905/jod.2004.412361 ◽

2004 ◽

Vol 11 (4) ◽

pp. 33-42 ◽

Cited By ~ 10

Author(s):

Paul H. Kupiec

Keyword(s):

Risk Taking ◽

Internal Model ◽

Bank Risk ◽

Capital Regulation ◽

Model Based

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Capital regulation and ownership structure on bank risk

Journal of Financial Regulation and Compliance ◽

10.1108/jfrc-02-2019-0015 ◽

2019 ◽

Vol 28 (1) ◽

pp. 39-56 ◽

Cited By ~ 2

Author(s):

Aysa Siddika ◽

Razali Haron

Keyword(s):

Maximum Likelihood ◽

Ownership Structure ◽

Risk Taking ◽

Commercial Banks ◽

Dynamic Panel Data ◽

Bank Risk ◽

Capital Regulation ◽

Content Type ◽

Global Banking ◽

The Impact

Purpose This paper aims to examine the impact of capital regulation, ownership structure and the degree of ownership concentration on the risk of commercial banks. Design/methodology/approach This study uses a sample of 565 commercial banks from 52 countries over the period of 2011-2015. A dynamic panel data model estimation using the maximum likelihood with structural equation modelling (SEM) was followed considering the panel nature of this study. Findings The study found that the increase of capital ratio decreases bank risk and the regulatory pressure increases the risk-taking of the bank. No statistically significant relationship between banks’ ownership structure and risk-taking was found. The concentration of ownership was found negatively associated with bank risk. Finally, the study found that in the long term, bank increases the capital level that decreases the default risk. Originality/value This study presents an empirical analysis on the global banking system focusing on the Basel Committee member and non-member countries that reflect the implementation of Basel II and Basel III. Therefore, it helps fill the gap in the banking literature on the effect of recent changes in the capital regulation on bank risk. Maximum likelihood with SEM addresses the issue of endogeneity, efficiency and time-invariant variables. Moreover, this study measures the risk by different proxy variables that address total, default and liquidity risks of the banks. Examining from a different perspective of risk makes the study more robust.

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