COMPLETED - The Role of Chief Risk Officer

The new project “Risk Management, Corporate Governance and Investment Banking: The Role of Chief Risk Officer” was initiated by the researchers from the International Center for Banking and Corporate Governance, and planned to be firstly presented on the International Conference “Governance & Control in Finance & Banking: A New Paradigm for Risk & Performance" in Paris, France, April 18-19, 2013.

The aim of the investigation is to define the role of CRO in corporate governance and to show the interrelation between the way of CRO subordination and performance of investment bank. The sample consists of observations over a period of 2011 for 29 biggest investment banks (by amount of assets) implementing world-wide investment activity. The banks are originated in the USA (8), Eastern Europe (14), China (2), Japan (2), Canada (2), and Australia (1).

The empirical analysis of risk management in the research is based on two different groups of factors, which could be used to evaluate the effectiveness of risk management in this sphere: analysis of CRO impact - Risk Management Committee factors (RMC presence; Independence of RMC members; Quantity of non-executive members in RMC) and CRO factors (CRO presence; Subordination of CRO in bank and possibility of access to the Board; CRO presence in the Board of Directors) and Evaluation of Financial Performance (ROATA, ROE, P/B ratio and Standards on bank capital adequacy by Basel III).

With the aim to evaluate and compare financial performance of selected banks the construction of synthetic key performance indicator (SKPI) is worked out. The analysis of financial performance is based on weighted four variables: common equity Tier 1 (CET 1), return on equity (ROE), return on average tangible assets (ROATA) and price to book ratio (P/B). The weight of each measure has been calculated using the first formula of Fishburn.

The research team is comprised of Yulia Lapina, PhD student, Ukrainian Academy of Banking of the National Bank of Ukraine, Tatiana Scherbina, PhD, Senior Lecturer, Ukrainian Academy of Banking of the National Bank of Ukraine, Olya Afanasieva, PhD, Lecturer, Ukrainian Academy of Banking of the National Bank of Ukraine.