Annotated Bibliography On ERM In Banking

Annotated Bibliography On Erm In Banking1annotated Bibliography On Erm

Identify the actual assignment question/prompt: Write an annotated bibliography on Enterprise Risk Management (ERM) in banking, summarizing and analyzing multiple credible sources discussing ERM implementation, its effects on bank performance, risk reduction, and the impact of financial crises on ERM disclosure and effectiveness. The work should synthesize insights from various studies, highlighting common themes, differences, and the significance of ERM in the banking sector.

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Enterprise Risk Management (ERM) has become an increasingly vital component within the banking industry, especially in light of dynamic financial environments and the lessons learned from financial crises. Analyzing existing scholarly works reveals multiple dimensions of ERM's role in bank performance, risk mitigation, regulatory compliance, and disclosure practices.

One of the significant findings from Chuang et al. (2017) is that the implementation of ERM in Taiwan's financial sector provides tangible benefits, including enhanced firm value, improved revenue efficiency, and reduced costs. Their longitudinal study over 2001–2016 demonstrates that firms engaging in ERM activities tend to outperform non-ERMed counterparts, emphasizing the strategic advantage of risk management practices. Similarly, Liem (2018) examines the early phases of ERM in Indonesian state-owned banks, illustrating that ERM adoption positively correlates with key performance metrics such as Net Interest Margin (NIM), Return on Average Assets (ROAA), and Efficiency Margin (EM). This study underscores that maturity levels of ERM implementation influence performance metrics and suggests that continuous development in ERM processes can further enhance bank productivity.

Furthermore, research by Lundqvist and Vilhelmsson (2018) explores the relationship between ERM and default risk, finding evidence that expanded ERM practices can decrease a bank's probability of default by mitigating uncertainties related to cash flows and operational risks. Their analysis indicates that a one-standard-deviation increase in ERM extent correlates with lower Credit Default Swap (CDS) spreads, signifying reduced default risk—an essential insight for risk regulators and bank policymakers aiming to bolster financial stability.

In the context of small and community banks, Meinert (2018) emphasizes the rising regulatory emphasis on ERM frameworks, asserting that even smaller institutions are being urged to adopt comprehensive risk management practices. The author notes that effective ERM can serve as a signal to stakeholders about financial resilience, fostering trust and stability in local banking sectors. This aligns with the broader understanding that ERM's adoption across various banking sizes can contribute to sound risk governance.

Examining the impact of the 2007–2008 financial crisis, Zeghal and El Aoun (2016) highlight significant shifts in ERM disclosure practices among US banks. Their content analysis of annual reports reveals that post-crisis, banks intensified their ERM disclosures, although these are often intertwined with perceptions of operational, market, and strategic risks. They note that larger banks and those with more active governance structures tend to provide more extensive ERM disclosures, highlighting the role of transparency in enhancing stakeholder confidence during turbulent times.

Zeghal and El Aoun (2016) further investigate how the financial crisis prompted modifications in ERM strategies, noting that banks refined their risk identification and mitigation processes, especially regarding credit and market risks. These strategic adjustments aim to improve resilience against systemic shocks and to meet evolving regulatory standards. Such findings underscore the importance of adaptive ERM systems capable of responding to macroeconomic fluctuations and crises, fostering a robust risk culture within banking institutions.

Additional insights from Soliman and Mukhtar (2017) reinforce the positive association between ERM implementation and firm performance, particularly in Nigerian banks. Their combined model demonstrates that higher ERM scores are linked with increased return on equity, firm value, and stock performance, substantiating ERM’s role in enhancing overall organizational resilience and profitability. This cross-country evidence emphasizes that regardless of a bank's geographic location, sophisticated ERM frameworks can substantially impact financial outcomes.

Collectively, these studies depict ERM as a multifaceted mechanism that not only enhances performance and reduces default risk but also strengthens transparency and strategic agility amid crises. The evidence consistently suggests that banks adopting comprehensive ERM practices are better positioned to navigate volatility, meet regulatory demands, and foster stakeholder trust. Moreover, the evolving strategies post-2008 crisis illustrate a trend toward more rigorous risk disclosure and proactive risk management, reflective of lessons learned and the imperative for systemic stability.

These scholarly contributions collectively underscore the importance of developing and maturing ERM frameworks within banking institutions to gain competitive advantages, ensure compliance, and sustain resilience. For practitioners and regulators, the insights reveal that continuous assessment and refinement of ERM strategies are vital, especially in a landscape characterized by rapid economic upheavals and complex global financial risks.

References

  • Chuang, Y. W., Lin, C. Y., Shih, J. Y., & Tsai, W. C. (2017). The Value of Implementing Enterprise Risk Management: Evidence from Taiwan's Financial Industry. Journal of Risk and Insurance.
  • Liem, C. (2018). Enterprise Risk Management in Banking Industry. Firm Journal of Management Studies, 3(1), 1-15.
  • Lundqvist, S. A., & Vilhelmsson, A. (2018). Enterprise Risk Management and Default Risk: Evidence from the Banking Industry. Journal of Risk and Insurance, 85(1).
  • Meinert, M. C. (2018). Embracing ERM at Community Banks. American Bankers Association. ABA Banking Journal, 110(1), 28-29.
  • Soliman, A., & Mukhtar, A. (2017). Enterprise Risk Management and Firm Performance: An Integrated Model for the Banking Sector. Banks and Bank Systems.
  • Zeghal, D., & El Aoun, M. (2016). The Effect of the 2007/2008 Financial Crisis on Enterprise Risk Management Disclosure of Top US Banks. Journal of Modern Accounting and Auditing, 12(1), 28-51. doi:10.17265//2016.01.003
  • Zéghal, D., & El Aoun, M. (2016). Enterprise Risk Management in the US Banking Sector Following the Financial Crisis. Modern Economy, 7(04), 494.

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