Bank Corporate Governance, Risk-Avoidance or Risk-Taking

Following up on the publication of the Walker Report (2009) in the United Kingdom, international organizations such as the Basel Committee, the OECD, and the European Union have proposed guidelines to improve bank corporate governance and, more specifically, risk governance. These international reports vary widely on what the prime objective of bank corporate governance should be, with one group recommending a shareholder-based approach, and the other a stakeholder-based one. Moreover, the focus of these reports is exclusively on risk avoidance, with little guidance as to how an acceptable level of risk, the risk appetite, should be defined. Drawing on insights from economics and finance, this paper is intended to contribute to the debate on bank corporate governance.