ESSAYS ON BANK RISK GOVERNANCE

This thesis examines recent regulatory reforms on risk governance and focuses on three key areas: the role of the chief risk officer, risk culture and board diversity. The purpose of this thesis is to close the gap between corporate governance and bank risk management. This thesis consists of three empirical chapters.
In the empirical chapter (Chapter 3) of thesis, I investigate how the presence of female chief risk officers (CROs) affects risk practices in banks. Using a unique dataset of 120 US banks and Bank holding Companies for 2004–2018, I find that female CROs take higher risks, but female presence on risk committees and in boardrooms moderates the risk behaviour of the female CROs. Interestingly, female CROs reporting to the board instead of the CEO results in a low level of risk by banks. The results have important implications for regulators and corporate boards, showing that appointing a female risk officer is insufficient to reduce risk.
The empirical chapter (Chapter 4) of thesis, I explores the impact of corporate risk culture and board gender diversity on bank risk behaviour. Using a Competing Value Framework to measure the corporate risk culture of 120 U.S. banks and bank holding companies for 2004-2018, this research provides empirical evidence that enhanced board gender diversity interacts with the risk culture, leading to less risk in banks. The process through which gender diversity influences board efficiency in moderating risk comes from the female directors' ethical and risk-averse nature. It further confirms that female directors influence the risk culture when their number reaches a critical mass. This study also reveals that the impact of greater board gender diversity on risk culture has considerably resulted in a low level of banks' risk in the post-2009 time. The findings are robust to alternative proxies for bank risk, risk culture and sub-sample analysis. The results also support the regulatory stance of "tone from the top" as an important driver of corporate culture affecting bank risk.
The empirical chapter (Chapter 5) of the thesis, I examines the effect of heterogeneity in independent directors' attributes on bank misconduct. In this chapter, I construct a heterogeneity index based on gender, financial expertise, and tenure of independent directors. Examining a sample of 69 U.S. banks and bank holding companies from 2004 to 2020 reveals that heterogeneity in independent directors' attributes helps mitigate bank misconduct, particularly for banks with a higher information asymmetry. The chapter's findings also show that heterogeneity in independent director attributes significantly reduced bank misconduct post-2009. The finding is robust to alternative measures of bank misconduct, heterogeneity index and model specifications. This study provides important implications for regulators and policymakers on structuring bank boards.