TITLE:
Enterprise Risk Management in the US Banking Sector Following the Financial Crisis
AUTHORS:
Daniel Zéghal, Meriem El Aoun
KEYWORDS:
Enterprise Risk Management (ERM), Financial Crisis, US Banks
JOURNAL NAME:
Modern Economy,
Vol.7 No.4,
April
29,
2016
ABSTRACT: Purpose: The purpose of this paper is to investigate the effect of the
financial crisis on the management of risk in the largest US banks. Design/Methodology/Approach:
Levels of risk exposure, risk consequences and risk management were examined
using a content analysis of the 10-K annual reports form of a sample of 59
largest U.S. banks. Paired-t-test, along with frequency analysis of the disclosures of 15 banking risks was used to
test our research hypotheses. Findings: We found that the subprime
financial crisis had significantly affected the levels of risk exposure and its
consequences after the crisis (risks more probable and certain with major
consequences). We also found minor but significant changes in the ERM
strategies after the crisis for the three major categories of risk investigated in this study (financial, business,
strategic). We found that the changes in ERM strategies were not
significant for risks examined individually with the exception of credit risk. Finally,
the number of banks disclosing their levels of ERM increased after the crisis
especially for systemic risk. Practical implications: Our study is particularly
relevant for standards setters and regulatory bodies for it sheds light on the
vulnerability of banks to certain types of risks (such as systemic risk) and
helps them orient their analysis and find comprehensive and innovative
solutions for future reform. Originality/Value: This research enriches the
literature on ERM disclosures and presents the first study examining the effect
of the crisis on ERM levels in the US banking sector.