Risk Management, Governance, Culture, and Risk Taking in Banks

A common understanding of risk connotes an exposure to danger, so if risks are dangerous, then prudent risk management should seek to minimize them. However, banks must assume some risks to earn a profit. Banks strive to maximize shareholder value, and taking on money-making opportunities is central to that mission. Whether they extend loans, write derivative contracts, make payments or trade foreign exchange, banks face some possibility of loss every day – sometimes enough to place them under “financial distress.” Proper risk management is not the reduction of risk but rather the maintenance of an intended...