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The Importance of Board Risk Oversight in Times of Crisis


This study investigates the relationship between board risk oversight practices at financial institutions in the EU and systemic risk during the sovereign debt crisis. More specifically, we examine whether European banks and insurance companies that had strong board-level risk oversight in place before the onset of the sovereign debt crisis fared better during the crisis. We construct a risk oversight index based on publicly available, hand-collected data, which captures the strength of the institutions’ board-level risk governance practices. We find that financial institutions with stronger board risk oversight prior to the crisis were less vulnerable to the sovereign debt crisis, after controlling for other factors. The results are consistent and economically relevant for SRISK, probability of default, and Delta-CoVaR, three measures of systemic risk that are commonly used in the context of financial institutions.

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  1. Basel Committee on Banking Supervision (2014) Corporate governance principles for banks.

  2. European Banking Authority (2011) EBA guidelines on Internal Governance.

  3. Financial Stability Board (2013) Thematic Review on Risk Governance.

  4. OECD (2014) Risk Management and Corporate Governance, OECD Publishing.

  5. EIOPA (2015) Final Report on Public Consultation No. 14/017 on Guidelines on system of governance.

  6. SRISK is a systemic risk measure developed by the Center for Risk Management at Lausanne, in collaboration with the NYU Stern’s Volatility Institute.

  7. We thank an anonymous referee for suggesting an additional exploration of the validity of combining banks and insurance companies in the analysis. When we empirically test the correlation of equity returns between insurance companies and banks over the sample’s period, the results show a strong average correlation of 0.89 over the whole period. This result confirms the strong relationship between banks and insurance companies.

  8. Other selection criteria are: focus on holding entities, annual reports available back to 2006, IFRS based reporting, excluding FIs that are listed in an EU country but are not EU banks or insurance companies, and excluding FIs merged or founded after 2006.


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Correspondence to Regine Slagmulder.

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Appendix A

Empirical literature investigating the effect of corporate governance on FI performance and risk

References Sample origin Sample period Corporate governance variables Performance and risk outcomes Sign of the relationship
Ownership structure
 Demirgüç-Kunt and Huizinga (1999) Developed countries (80) 1988–1995 Foreign ownership Margins and profits  + 
 Bonin et al. (2005) Central and Eastern Europe 1996–2000 Foreign ownership Cost efficiency  + 
 Fries and Taci (2005) Eastern Europe 1993–2000 Private and foreign ownership Cost efficiency  + 
 Iannotta et al. (2007) Europe (15 countries) 1999–2004 Ownership model, ownership concentration Profitability, cost efficiency, risk  ± 
 Laeven and Levine (2009) International (48 countries) 1996–2001 Large owners with cash flow rights Bank risk  + 
 Erkens et al. (2012) International (30 countries) 2007–2008 Institutional ownership Crisis performance
 Switzer et al. (2018) International (28 countries) 2010–2012 Institutional ownership Default risk
Insider holdings Default risk  + 
Board structure (including board size and independence)
 Brewer et al. (2000) US 1980–1998 Board independence Merger premium  + 
 De Andres and Valledelado (2008) Canada, France, UK, Italy, Spain and US 1995–2005 Board size Bank performance Inverted U-shaped
 Pathan (2009) US 1997–2004 Board size, board independence, CEO power Bank risk
 Cuñat and Garicano (2009) Spain 2007–2009 Chairman’s independence Loan performance  + 
 Erkens et al. (2012) International (30 countries) 2007–2008 Board independence Crisis performance
 Adams and Mehran (2012) US 1986–1999 Board size Bank performance  + 
 Beltratti and Stulz (2012) International (32 countries) 2006–2008 Shareholder-friendly boards Crisis performance
 Pathan and Faff (2013) Europe (20 countries) 1997–2011 Board independence Bank performance
Gender diversity Bank performance  + 
 Faleye and Krishnan (2014) US 1994–2008 Board effectiveness (size and independence) Risky lending
 Battaglia and Gallo (2017) Europe 2006–2010 Board size Bank risk  + 
Frequency of board meetings Bank risk
 Switzer et al. (2018) International (28 countries) 2010–2012 Board independence Default probabilities
Credit default swap (CDS) spreads  + 
Board size, CEO duality Default risk  + 
Board human capital
 Cuñat and Garicano (2009) Spain 2000–2006 Chairman’s postgraduate education and banking experience Loan performance  + 
 Fernandes and Fitch (2009) US 2006–2007 Financial experience of board members Crisis performance  + 
 Hau and Thum (2009) Germany 2006–2008 Financial experience of board members Bank performance  + 
 De Jonghe et al. (2012) Turkey 1988–2009 CEO experience Risk/return efficiency of banks  + 
Political background of the chairman
 Minton et al. (2014) US 2003–2008 Financial expertise among independent directors Crisis performance, stock returns
Bank risk  + 
Executive compensation
 Fahlenbrach and Stulz (2011) US 2006–2008 CEO incentive pay (equity-based compensation) Crisis performance
 Bennett et al. (2015) US 2006–2008 CEO’s inside debt holdings Default risk
Performance (ROA, ROE, stock returns)  + 
 Cheng et al. (2015) US 1992–2008 Total executive compensation Bank risk  + 
 Guo et al. (2015) US 1992–2008 Composition of executive compensation (proportion of short-term and long-term incentive pay) Bank risk  + 
 Iqbal and Vähämaa (2019) US 2005–2010 Sensitivities of executive compensation to stock return volatility Systemic risk
Other (risk) governance characteristics
 Aebi et al. (2012) US 2006–2008 CRO reporting to the board and not to the CEO (or other corporate entities) Crisis performance  + 
 Peni and Vähämaa (2012) US 2005–2008 Gov-Score index by Brown and Caylor (2006, 2009) Crisis performance, profitability  + 
Crisis performance, stock returns
 Lingel and Sheedy (2012) International (17 countries) 2004–2010 Inclusion of the CRO in the senior executive team, CRO ranked in the Top 5 paid executives, activity of the risk committee, proportion of experienced bankers in the risk committee Risk outcomes
 Baxter et al (2013) US 2006–2008 Enterprise Risk Management program quality (based on S&P ERM quality rating) Accounting returns (ROA)  + 
Market value (Tobin’s Q)  + 
Post-crisis buy-and-hold abnormal returns  + 
 Ellul and Yerramilli (2013) US 2000–2008 Risk Management Index (RMI) as a proxy for strength of organizational risk controls Crisis performance  + 
 Bailey (2019) US 2006–2012 Expertise of the CRO and risk committee members ERM quality and Tobin’s Q  + 
 Magee et al. (2019) International (18 insurance markets) 2004–2012 Risk governance index Risk- adjusted performance measures and Tobin’s Q  + 
 Mollah et al. (2019) International (71 countries) 2007–2016 Presence of risk committee and CRO Earnings predictability Little impact
 Andrieş et al. (2020) International (10 countries) 2005–2012 Banks’ risk governance policies Bank risk No impact

Appendix B

Variable definitions and data sources

Variable Definition Source
Risk measures
 SRISK Capital shortfall of a FI conditional on a severe market decline CRML & Vlab
 SRISK% Share of the FI’s systemic risk in the financial system CRML & Vlab
 PD Probability of default—measures the likelihood of an obligor being unable to honor its financial obligations within a 1-month period CRI database
 Delta-CoVaR Difference between the CoVaR conditional on the FI being under distress and the CoVaR in the median state (normal loss) of the FI Wrds compustat own calculation
Variable Definition
Risk governance indicators (hand-collected)  
 Presence of risk committee Dummy variable that identifies whether there is a board-level risk committee that is responsible for managing overall risk and has board-level risk oversight
 Risk committee independence Dummy variable that identifies whether the percentage of independent members on the risk committee is higher than the sample median
 Risk committee experience In cases where there is no risk committee, we collect information on the audit committee
  Dummy variable that identifies whether the percentage of independent directors serving on the board’s risk committee has prior financial industry (including banking, insurance, private equity) experience
  In cases where there is no dedicated risk committee at board level, we collect information on the audit committee
 Risk framework by board Dummy variable that identifies whether the board is responsible for setting the risk management framework
  We only assign a 1 to this variable if there is a clear and direct statement that the board sets the risk framework. When it is vague or in case of doubt, we assign a 0 to this variable
 Risk appetite by board Dummy variable that identifies whether the board is responsible for setting the risk appetite statement
  We only assign a 1 to this variable if there is a clear and direct statement that the board sets the risk appetite. In case of doubt, we assign a 0 to this variable
Variable Definition Source
Institution and country controls
 Sales growth The annual growth rate of net sales Worldscope
 Ln(assets) Natural logarithm of total assets Worldscope
 Market-to-book Market value of the ordinary (common) equity divided by the balance sheet value of the ordinary (common) equity in the company Datastream
 ROA Return on assets: ratio of net income to total assets Datastream
 Leverage Market value of assets (defined as the sum of market value of equity + book value of debt) divided by market value of equity CRML & Vlab
 Ownership % largest shareholder Percentage of largest ownership Orbis, Diane, and hand-collected data from annual reports and company websites
 Board size Total number of board members at the end of the fiscal year Asset4
 Board independence Percentage of strictly independent board members (not employed by the company; not representing or employed by a majority shareholder; not served on the board for more than 10 years; not a reference shareholder with more than 5% of holdings; no cross-board membership; no recent, immediate family ties to the corporation; not accepting any compensation other than compensation for board service) Asset4
 GDP per capita Gross domestic product per capita (in euro) World Development Indicators database
 Inflation Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The Laspeyres formula is generally used World Development indicators database
Regulation Data are obtained from third-party sources, such as the International country risk guide, the global competitiveness report, and the world bank’s doing business project. the variable measures the extent to which regulation limits the freedom of exchange in credit, labor, and product markets in a specific country. The variable ranges from 0 to 10, with higher ratings indicating that countries have less control on interest rates, are less dependent on market forces to determine wages and establish the conditions of hiring and firing, and generally possess lower administrative burdens Fraser Institute database
 Insurance Dummy variable that identifies whether the FI is an insurance company (1) or a bank (0) Own calculation
 Government support Dummy variable that identifies whether the FI has received government support (1) or not (0) Own calculation
 Government support index Index variable ranging from 0 to 3, with higher values indicating that the respective FI has received different types of government support (state guarantees, recapitalization, money injections) Own calculation
 Crisis Dummy variable that equals 1 if the country is one of the GIIPS countries and the year is equal to 2010, 2011, 2012 or 2013 (i.e., the crisis period), and 0 otherwise Own calculation

Appendix C

Table 11 List of banks

Appendix D

List of insurance companies

  Country Institution
1 Austria Uniqa Insurance Group AG
2 Austria Vienna Insurance Group Ag Wiener Versicherung Gruppe
3 Denmark Topdanmark A/S
4 Denmark Tryg A/S
5 France AXA SA
6 France Scor SE
7 Germany Allianz SE
8 Germany Hannover Rueck SE
9 Italy Assicurazioni Generali SPA
10 Italy Mediolanum SPA
11 Netherlands Aegon NV
12 Netherlands Delta Lloyd NV
13 Norway Gjensidige Forsikring ASA
14 Switzerland Baloise Holding AG
15 Switzerland Helvetia Holding AG
16 Switzerland Swiss Life Holding AG
17 Switzerland Swiss Re AG
18 Switzerland Zurich Insurance Group AG
19 United Kingdom Aviva PLC
20 United Kingdom Legal General
21 United Kingdom Prudential PLC
22 United Kingdom RSA Insurance Group PLC

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Dupire, M., Haddad, C. & Slagmulder, R. The Importance of Board Risk Oversight in Times of Crisis. J Financ Serv Res 61, 319–365 (2022).

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  • Risk governance
  • Systemic risk
  • Sovereign debt crisis
  • Financial institution