This paper sets out the criteria that boards and supervisors should use to determine whether banks are governing risk correctly. First, boards have to set an overall risk target consistent with the overall return target. Second, the bank’s business model has to set a risk capacity and risk...

This paper sets out the criteria that boards and supervisors should use to determine whether banks are governing risk correctly. First, boards have to set an overall risk target consistent with the overall return target. Second, the bank's business model has to set a risk capacity and risk...