Axis 3: Risk management Frameworks

Objectives

In decentralised organisations, risk management should start with a risk culture widely shared by the whole group of the entities involved in the organisation.
However a centralised and extremely efficient steering board employing adequate tools is necessary.
The notion of data quality is a major challenge and a regulatory requirement, for instance in the banking sector; it is meant to enhance progress in banks aggregating their risks data, therefore allowing a better prevention of financial crisis.
Moreover, even up to now risks have been monitored under the regulatory constraints, currently the aim is to build a unique control tower. This should be a main objective for any company.
Operational risk management is also a primary challenge in any economic sector. While credit risks are known, localised and mastered, operational risks are everywhere, transversal and more difficult to evaluate, due to rapid changes in their profile (for instance multiplication of cyber–attacks).

Project 1 - Risk governance and control within financial cooperatives groups, current practices and stakes in the prudential framework (SREP)

Stéphane Albert (IAE de Paris) / Georges Chappotteau (IAE de Paris) / Prof. Frédéric Gautier (IAE de Paris)

Key themes:

• Definition of risk appetite and strategy.
• Risk data and reporting
• Daily risk intake
• Control functions
• Management oversight and risk committees
• Capital and liquidity management (ICAAP et ILAAP), institutional protection schemes.

Objectives

• Study risk management settings implemented by the financial cooperative groups, as well as recent trends, with regard to the European and Basle prudential regulation.
• Comprehend responsibilities at local and central levels as well as advantages of (de)decentralization.
• In which extent(s) does the centralization or the decentralization cope with an integrated (shared) vision of the risk management?
• Identify strengths and issues shared by the financial cooperatives groups in terms of risk management.

Methodology

Field study in cooperation with various financial cooperative groups, relying on questionnaires and interviews.

Project 2: Governance and performance of risk management

Stéphane Albert (IAE de Paris) / Georges Chappotteau (IAE de Paris) / Prof. Frédéric Gautier (IAE de Paris)

Key themes:

• Organizational structure (regional and central units) and management bodies (e.g. board composition).
• Position of risk control functions (" Chief Risk Officer ").
• Centralization/decentralization of the risk decision and level of integration of strategy.
• Institutional protection schemes.

Objectives

• Contribute to the growing research addressing effects of the risk governance on the risk level, while shedding a light on financial cooperative groups (historically decentralized).
• Measure effects of above key governance items on global risk/risk-return and on specific risks, at both local and global levels.
• Study, where relevant, differences in risk and risk-return with commercial banks with regard to governance items.

Methodology

Empirical studies covering various financial cooperative groups, out of financial statement and banking databases.

Project 3: Business model / risk appetite

Stéphane Albert (IAE de Paris) / Georges Chappotteau (IAE de Paris) / Laetitia Legalais /Prof. Frédéric Gautier

Status:

Project launched in spring, positioning in the literature / research questions are under completion

• Principles for an effective Risk appetite Framework (FSB, 2013)
• SSM Supervisory statement on governance and risk (ECB, 2016)

Headlines

• Qualitative study based on in-depth interviews with CRO and management controllers to understand and analyze the interactions between RAF, strategic decision making and budgeting: measurement infrastructure and indicators, reporting and monitoring infrastructure, policies and guidelines, accountabilities
• Theoretical backgound based on Barley and Tolbert Framework (structure and agency) as used by P. Jarzabkowski studies
• Variables to explore (?): risk appetite dashbord (metrics), material non-financial risks included, organizational consequences of an integrated approach, drill-down of risk appetite and tolerances