Public Risk Governance in Banking: A UK View

Abstract

This paper tackles the issue of risk governance of the banking sector. Since the 2007 financial crisis, there has been an increased awareness of risk governance in the banking sector. The importance of banking to the economy is such that society in general has an interest in appropriate supervision. Deregulation has led to banks being given more ability to determine their own level of risk. Yet, the recent crisis has prompted a need to examine fundamentally the governance of risk, in particular that which poses a risk to the public. When dealing with public risks the authors have suggested the concept of ‘knowledgeable supervision’ as a solution which casts the issues as the responsibility of a network of stakeholders. The stakeholders must share the responsibility for the risks in line with the knowledge, expertise and capabilities they have. This paper explores the possibility of extending this concept to the governance of risk in the banking industry. Obviously the public generally will have insufficient knowledge to deal with the inherent risks, and so to remedy this it is argued that there needs to be greater responsibility and effort on the part of other stakeholders to increase the public’s knowledge via financial literacy.

Keywords: banking, regulation, risk, supervision, governance, accountability.

JEL Classification: G18, G21, G38