Risk Management and Value Creation in Financial Institutions

Risk Management and Value Creation in Financial Institutions, 9780471254768 (0471254762), John Wiley & Sons, 2002

From an empirical as well as a personal point of view, risk management in the financial industry has been one of the most exciting and most researched areas over the last decade. Depositors and regulators claim that risk management is necessary, and many banks argue that superior risk management can create (shareholder) value. However, from a theoretical point of view, it is not immediately clear if and how risk management at the corporate level can be useful. Very little research has been conducted as to why there is an economic rationale for risk management at the bank level.

This book provides a closer and a more differentiated view on the subject than previous research and is intended to describe both the theory and the practice of corporate risk management in financial institutions. It is different from other works on this subject in the following significant ways.

First, it addresses the question of under which circumstances risk management at the corporate level can help to maximize value. These conditions require a deviation from standard neoclassical finance theory because in (risk) efficient markets corporate risk management could destroy value, especially if it comes at a cost, and it is shown that risk management at the bank level is not restricted to hedging activities in such a world.

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