Well-Governed Banks Should Identify Optimal Amount Of Risk

A well-governed bank will have processes in place to identify the optimal amount of risk and ensure that its risk stays close to this optimal amount, notes a research paper from Ohio State University. René Stulz of Ohio State University in the research paper titled: “Governance, Risk Management, and Risk-Taking in Banks” highlights how governance and risk management affect risk-taking in banks. Good vs bad risks According to the paper, banks are exposed to good risks and bad risks. Good risks are risks that have an ex-ante private reward for the banks on a stand-alone basis. On the other hand,…