Board Risk Oversight, Hedging Intensity, and the Idiosyncratic Risk of U.S. Banks

Can the board of directors of U.S. banks provide effective risk oversight in today's complex risk environment? The answer, according to Robert Rubin, former director of Citigroup, is no, because “[t]he board as a whole is not going to have a granular knowledge [of operations].” ¹ If this view is representative of U.S. banks generally, it raises concerns about the strength of corporate governance in the banking industry and its impact on the risk management of these institutions. Intensity of risk management in turn affects the riskiness of bank stocks and, ultimately, the survival of the individual banks and the stability of financial markets.