Are Banks Improving Risk Governance After The Financial Crisis?

This article investigates the extent and the effectiveness of risk governance improvements in banks after the financial crisis of 2007/2008. Using a sample of 30 pairs of matched banks that were the center of the financial crisis, we find that (a) banks with lower stock performance (lower performing banks) had weaker risk governance in the year before the financial crisis than those with higher stock performance (higher performing banks), (b) those lower performing banks took corrective actions to rebuild their risk governance characteristics up to the level similar to the higher performing banks 2 years after the crisis, (c) the improvement of risk governance in the lower performing banks did not increase their institutional holdings and analyst followings, and (d) those lower performing banks that have taken corrective actions to improve risk governance have improved risk management and increased stock performance 2 years after the financial crisis.