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Risk committee complexity and liquidity risk in the European banking industry

Simona Galletta, Sebastiano Mazzù and Enzo Scannella

Journal of Economic Behavior & Organization, 2021, vol. 192, issue C, 691-703

Abstract: The present study aims to investigate how bank governance characteristics are related to liquidity risk by analysing board composition, gender, and the risk committee. A dynamic panel data model is employed on a sample of European banks during the period after the financial crisis (from 2011 to 2017). Furthermore, we collect information about the profiles of the directors on the boards of banks, thereby creating five categories of risk committee members. To address the endogeneity issue, a generalised method of moments two-step estimator is implemented. The findings highlight that the fundamental role of the risk committee adequately shields banks against general liquidity risks. Moreover, the results show a reduction in liquidity risk when a certain threshold of risk supervisors is defined, aiming to reduce risk-taking behaviours. We provide evidence that the effectiveness of the risk committee is strictly related to its complexity. The results of the present study support the corporate governance principles for banks established by the Basel Committee on Banking Supervision, thus reinforcing the board's risk governance responsibilities, especially with regard to the specific roles of the risk committee.

Keywords: Banking sector; Bank liquidity risk; Corporate governance; Basel III; Financial stability (search for similar items in EconPapers)
JEL-codes: C13 G21 G28 G32 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:192:y:2021:i:c:p:691-703

DOI: 10.1016/j.jebo.2021.10.033

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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