The global financial crisis has pushed the failure of bank governance mechanisms into the spotlight – revealing risk levels that are higher than the banks’ risk appetite – and is fostering the emergence of stronger corporate governance. It is now clear that overall risk governance was not properly addressed by risk management units, thus, since 2010 several regulators and expert groups have called for a restructuring of the Chief Risk Officer’s (CRO) role. A stronger CRO role, in terms of independence and function, has emerged from the new regulatory environment. Italian regulators have met the international guidelines and the European laws by adopting the Italian internal control regulations (Bank of Italy, 2013b). To date, few studies have investigated the CRO’s role through the Italian lens. Palego (2013) discussed the role of the CRO in conjunction with the approval of the new international framework on internal controls, while Schwizer (2013) examined Italian CROs (I-CROs) in terms of functions and organisational positioning, with particular attention to the function of compliance. Using a sample of Italian listed banks, the aim of the chapter is to extend the knowledge of I-CROs analysing and discussing (i) their evolving roles, (ii) their demographic characteristics (e.g. gender, nationality, age, education and experience) in the light of an international comparison with Global Systemically Important Banks (G-SIB). To achieve this aim, we use a multi-step methodology, including: i) the definition of a framework for analysing CRO attributes; ii) the set-up of three scores to summarise information on CROs; iii) the use of content analysis to identify features mapped in the scores; and iv) the calculation of the scores according to the collection of CRO characteristics. The empirical evidence is based on the banks’ annual reports and institutional websites. The chapter contributes to the existing literature in several ways. Foremost, this study is the first after the implementation of the Italian regulation on internal controls (Bank of Italy, 2013b), thus, it provides evidence on how banks have incorporated the new regulatory framework. Second, to the best of our knowledge, this study is the first to assess the characteristics of I-CROs in terms of diversity, education and experience, while other studies have discussed features of Italian Chief Executive Officers (CEOs) and of board directors (e.g. Del Prete & Stefani, 2015; Pastore, 2018; Cucari, Esposito De Falco, & Orlando, 2018; Esposito De Falco, Bilotta, & Cucari, 2016). Thus, the explorative analysis of CRO characteristics contributes to the broader debate on Italian bank governance, exploring how far Italian practices differ from international practices. In addition, the study offers useful indications for policymakers and regulators interested in strengthening governance mechanisms and bank stability. The research’s findings reveal that the identikit of I-CROs does not significantly differ from G-CROs and specifically: i) the level of education seems appropriate; ii) few CROs are foreigners or women; and iii) several CROs were appointed after extensive experience in the financial industry, but they have no specific experience in risk management. Thus, from the regulatory perspective, improving the regulations regarding CRO appointments should be an interesting point of reflection for scholars and regulators. Furthermore, in consideration of the studies showing the positive role women play on a bank’s performance, our research leads towards the necessary reflection on the under-representation of women in the panorama of CROs, especially considering the pivotal role of the CRO on a bank’s stability.

CHIEF RISK OFFICER’S CHARACTERISTICS: ITALIAN LISTED BANKS VERSUS G-SIBs

Giuliana Birindelli;Helen Chiappini;Giorgio Horeczko
2019

Abstract

The global financial crisis has pushed the failure of bank governance mechanisms into the spotlight – revealing risk levels that are higher than the banks’ risk appetite – and is fostering the emergence of stronger corporate governance. It is now clear that overall risk governance was not properly addressed by risk management units, thus, since 2010 several regulators and expert groups have called for a restructuring of the Chief Risk Officer’s (CRO) role. A stronger CRO role, in terms of independence and function, has emerged from the new regulatory environment. Italian regulators have met the international guidelines and the European laws by adopting the Italian internal control regulations (Bank of Italy, 2013b). To date, few studies have investigated the CRO’s role through the Italian lens. Palego (2013) discussed the role of the CRO in conjunction with the approval of the new international framework on internal controls, while Schwizer (2013) examined Italian CROs (I-CROs) in terms of functions and organisational positioning, with particular attention to the function of compliance. Using a sample of Italian listed banks, the aim of the chapter is to extend the knowledge of I-CROs analysing and discussing (i) their evolving roles, (ii) their demographic characteristics (e.g. gender, nationality, age, education and experience) in the light of an international comparison with Global Systemically Important Banks (G-SIB). To achieve this aim, we use a multi-step methodology, including: i) the definition of a framework for analysing CRO attributes; ii) the set-up of three scores to summarise information on CROs; iii) the use of content analysis to identify features mapped in the scores; and iv) the calculation of the scores according to the collection of CRO characteristics. The empirical evidence is based on the banks’ annual reports and institutional websites. The chapter contributes to the existing literature in several ways. Foremost, this study is the first after the implementation of the Italian regulation on internal controls (Bank of Italy, 2013b), thus, it provides evidence on how banks have incorporated the new regulatory framework. Second, to the best of our knowledge, this study is the first to assess the characteristics of I-CROs in terms of diversity, education and experience, while other studies have discussed features of Italian Chief Executive Officers (CEOs) and of board directors (e.g. Del Prete & Stefani, 2015; Pastore, 2018; Cucari, Esposito De Falco, & Orlando, 2018; Esposito De Falco, Bilotta, & Cucari, 2016). Thus, the explorative analysis of CRO characteristics contributes to the broader debate on Italian bank governance, exploring how far Italian practices differ from international practices. In addition, the study offers useful indications for policymakers and regulators interested in strengthening governance mechanisms and bank stability. The research’s findings reveal that the identikit of I-CROs does not significantly differ from G-CROs and specifically: i) the level of education seems appropriate; ii) few CROs are foreigners or women; and iii) several CROs were appointed after extensive experience in the financial industry, but they have no specific experience in risk management. Thus, from the regulatory perspective, improving the regulations regarding CRO appointments should be an interesting point of reflection for scholars and regulators. Furthermore, in consideration of the studies showing the positive role women play on a bank’s performance, our research leads towards the necessary reflection on the under-representation of women in the panorama of CROs, especially considering the pivotal role of the CRO on a bank’s stability.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11564/712020
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