This tendency must, however, be balanced against what should be the reduction in cyclical reserving and write-offs that traditionally have come with the late recognition of excess risk taken earlier. Moreover, if, as promised, better risk-management reduces the variance of charge-offs and earnings, bank equity values, to repeat, are likely to be rewarded with higher price-earnings ratios.
Put somewhat differently, better risk management and supervision may well focus bank management on its real objective: maximizing shareholder wealth. Building on market practice In setting boundaries and minimum standards for banks, we typically look at industry practices to identify what works well and what does not. In almost all cases, that’s the correct approach – to build on industry practice.