between good risks, which are risks that have an ex ante private reward for the bank on a standalone basis, and bad risks …, which do not have such a reward. A well-governed bank takes the amount of risk that maximizes shareholder wealth, subject to … it is cost effective to do so. The role of risk management in such a bank is not to reduce the bank's total risk per se …

We develop a theory of bank board risk committees. With this theory, such committees are valuable even though there is … no expectation that bank risk is lower if the bank has a well-functioning risk committee. As predicted by our theory (1 …) many large and complex banks voluntarily chose to have a risk committee before the Dodd-Frank Act forced bank holding …