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European Banks Struggle With Risk Appetite

Global Glimpses | October 28, 2010

Standards of risk governance have improved at Europe’s 25 biggest banks, but many boards are still failing to send management a clear message on the level of risk they can take, according to a new report.

Boards are more involved in approving risk appetite than they were before the financial crisis, but only 64 percent formally approved their firm’s risk appetite, up from 56 percent in 2007, according to Nestor Advisors, a governance consultancy.

On the plus side, more boards now have separate risk and audit committees—17 out of 25, compared to 12 in 2007. And twice as many boards are now involved in stress testing compared to two years ago (72 percent, up from 36 percent).

There are also stronger links between chief risk officers and the board: 16 of the top 25 banks have a direct reporting relationship with their CRO while 18 approve their CRO’s remuneration.

But the study also found that the level of...

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