Do the organizational choices really affect credit risks? Some evidence from Italian banks

Basel III framework on banking supervision highlights the crucial role of a sound organization in risk management processes. Using a structured survey sent to a group of Italian banks, the study verifies the alignment of organizational choices to sound practices suggested by supervisors. We investigate the role played by the Chief Risk Officer, and the level of integration with the Board of Directors. Our results demonstrate the increasing centrality and strategic responsibilities of the Chief Risk Officer, although with the high level of heterogeneity among banks. Moreover, the increase in integration between governance bodies and the Chief Risk Officer has a positive effect on both bank risk appetite and bank portfolio quality. The main findings suggest that the effectiveness of credit risk management is affected by the spectrum of the responsibilities assigned to the Chief Risk Officer and by the level of integration of risk structures with top governance bodies.