Module: | MODULE B: RISK MANAGEMENT
Q273: Consider the following statements regarding the structural hierarchy of risk management, as mandated by RBI guidelines:
1. The ultimate responsibility for laying down the overall risk appetite, and approving the foundational risk policies, rests exclusively with the Board of Directors.
2. The Board of Directors can legally delegate its ultimate accountability for risk management, to the independent Chief Risk Officer to avoid regulatory penalties.
3. The Risk Management Committee of the Board is primarily responsible, for executing daily trading operations and generating core banking revenue.
Which of the statements given above is/are correct?
2. The Board of Directors can legally delegate its ultimate accountability for risk management, to the independent Chief Risk Officer to avoid regulatory penalties.
3. The Risk Management Committee of the Board is primarily responsible, for executing daily trading operations and generating core banking revenue.
Which of the statements given above is/are correct?
✅ Correct Answer: A
The correct answer is A. Statement 1 is correct: According to core RBI and Basel guidelines, the Board of Directors (BoD) sits at the absolute top of the risk hierarchy.
The BoD holds the ultimate responsibility for setting the bank's "Risk Appetite" (how much total risk the bank is willing to take) and approving the overarching risk management policies.
Statement 2 is incorrect: While the Board delegates the *execution* of risk policies to the Chief Risk Officer (CRO) and executive committees, it can NEVER delegate its *ultimate accountability*. If a massive compliance failure or bankruptcy occurs, the regulators hold the Board of Directors legally accountable.
Statement 3 is incorrect: The Risk Management Committee of the Board (RMCB) is a high-level oversight and policy-formulation body.
It does not engage in operational, day-to-day business activities like executing trades or generating banking revenue.
Mixing oversight with revenue generation is a severe conflict of interest.
The BoD holds the ultimate responsibility for setting the bank's "Risk Appetite" (how much total risk the bank is willing to take) and approving the overarching risk management policies.
Statement 2 is incorrect: While the Board delegates the *execution* of risk policies to the Chief Risk Officer (CRO) and executive committees, it can NEVER delegate its *ultimate accountability*. If a massive compliance failure or bankruptcy occurs, the regulators hold the Board of Directors legally accountable.
Statement 3 is incorrect: The Risk Management Committee of the Board (RMCB) is a high-level oversight and policy-formulation body.
It does not engage in operational, day-to-day business activities like executing trades or generating banking revenue.
Mixing oversight with revenue generation is a severe conflict of interest.