Risk Management Committee Characteristics and Bank Stability

Abstract

In the banking sector, audit committees have traditionally focused on financial reporting and regulatory compliance and also oversee risk management practices to enhance stability and safeguard stakeholders' interests. In Ghana, the role of risk management in banks transformed significantly with the corporate governance directive in 2018 by BoG, emphasizing the importance of specialized risk oversight and governance. The purpose of this study is to test the impact of this regulatory change on bank risk taking and whether that this new risk focus unit of the board has actually changed risk taking behaviour of banks and which characteristics of the RMC are important. The study uses data from 2018 to 2022 period and panel regression was ran to analyze the data. The study's analysis of the effect of the introduction of Risk Management Committee (RMC) on bank stability, reveals a significant impact on bank stability. Across various regression models, there is strong evidence against the null hypothesis. On the committee’s characteristics, while the study expected RMC size to be significantly positively associated with bank stability, it rather found that there is a positive but insignificant relationship between committee size and bank stability. The study recommendations that banks should prioritize the establishment and empowerment of RMCs within financial institutions. Banks should prioritize enhancing the effectiveness and quality of their risk committees over merely increasing their size.