The effects of organizational structure and rules on banks risk management : A comparative case study of three major banks in Sweden

Abstract: A well functioning banking sector is crucial to the functioning of our financial system, but yet the banking sector has been very troubled by different crises during the last 20 years. Even though more stringent rules and requirements develop through increasingly stringent Basel agreements the global financial crisis of 2008 show that it still exist a problem of financial risk management. Further several financial organizations have run into financial problem because of failures in internal control and monitoring systems. Therefore it is worth highlighting the question of centralization or decentralization since this is a factor that affects the control an organization has. Based on this background we believe that it is important to investigate the effect these variables have on financial risk management.   The purpose of this study therefore is to outline the relationship between the degree of centralization and the risk management structure at three major banks in Sweden. Further we want to show the effect more stringent rules and regulations, stemming from the Basel agreements, have on the degree of centralization in the banks risk management. Further we wish to increase the general knowledge of which of the risks facing the banks that are most likely to be managed at the different levels and contrast on the differences between the banks.   Our main concepts presented in the theoretical frame of reference are rules and regulations, which mainly consists of the Basel agreements, financial risk and financial risk management, where we presents the main financial risks a bank is exposed to and how these risks mainly are handled. Lastly the concept of organizational structure is presented, where our main focus is on the concept of centralization/decentralization. From the above-mentioned concepts a semi-structured interview guide was deducted, which we used to gather our empirical data. Our main focus was to highlight the problem from the banks point of view and therefore the questions mainly focused on the effects for the banks and not for their customers.   The data gathered from the interviews is presented in the three broad categories of risk, rules and regulation and lastly organizational structure. From the empirical findings and analysis we could conclude that the banks seem to have similar risk management structures and the degree of centralization and the overall organizational structure do not seem to have a big impact on how the banks manage financial risks. Rather it is the nature of the risk that determines where in the hierarchy the risk is managed and how it is managed. Further the increasingly stringent rules and regulations contribute to increasing control functions, increased importance for central risk units and changes in risk management due to new methods for calculating risk exposures. Nevertheless the increasingly stringent rules and regulations do not affect where in the hierarchy business decisions are made.