XXV Edition

1-2 December 2016"

Risk Culture in Banks: Just Words?

Bianchi Nicola, University of Rome Tor Vergata
Fiordelisi Franco, University of Rome III
Farina Vincenzo, University of Rome Tor Vergata

The article studies the role of Risk Culture (RC) in banks’ stability. Financial Stability Board (FSB) defines RC: “bank’s norms, attitudes and behaviors [...] that shape decisions on risks” (FSB, 2014). After the financial crisis, different actors have started to stress the importance of changing RC in financial institutions (Walker, 2009; Parliamentary Commission on Banking Standards, 2013; House of Commons Treasury Committee, 2009; Institute of International Finance, 2009). The FSB in 2014 has created a list of important elements for a “sound” RC. New regulations (Basel Committee, 2015, Pillar III disclosure) are pushing banks to invest in analyzing and developing their own RC. Our work tries to put order in the debate testing the importance of RC in the institutions’ stability. We build a Sound Risk Culture Indicator (SRCI) applying quantitative text analysis on American and European banks’ annual disclosure. We use Annual reports, Corporate Governance Reports, Management report and Pillar III reports from 2004-2014 for European Banks and 10-K forms from 1994-2014 for American ones. The terms used for the analysis base on FSB’s framework. The study use a panel data and fixed effect model on different variables such as Z-score, ROE and NPLs.

Area: Banking

Keywords: risk, culture, bank, performance, text analysis, disclosure

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