Exploring Risk Perception and Management in UK Banks

Abstract The concept of risk has been interpreted, defined and researched overtime in many different ways. This research uses semi-structured interviews to explore the perception of risk through the views of UK bank managers. Although different risks are identified and discussed in this thesis, the main risk that these interviews are concerned with is credit risk. It builds on previous work from Mikes (2009, 2011) and Wahlstrom (2009) and uses structuration theory to understand how human beings interact with social systems to produce organizational outcomes. Twenty five (25) interviews were conducted among banking managers and executives over a period of close to two years. There were five (5) banks that participated in this research but the largest two banks (Glass bank and Penny bank) were analysed and presented separately because of the significant differences in their approaches to risk management despite their similarities in size and international operations. The other three (3) banks were much smaller in operations with no global operations and not much overall differences in their approach to risk management. The research finds three distinct approaches to risk management, based on perception. The first approach is based on a perception of risk as a measureable and quantitative construct. Managers and risk executives from Glass bank are strong believers of this risk philosophy and hence, the social subject (agent) is consciously separated from the object (the system) and the rule and procedures are viewed as being separate and distinct from the agents that implement and reproduce them. This approach mirrors what Layder (1987) refers to as “structural dualism” where the subject and the object are independent of each other but work together to produce organizational outcome. The emphasis in this approach is on the structure. The second approach to risk is situated in the belief that risk should be explored as a social variable, where the emphasis is not exclusive to measurement and calculation but rather on understanding risk by examining customer needs and building relationships through communication in an effort to better serve risk needs. This approach was mostly evident in Penny bank where risk is operationalized, as opposed to being centralized as in Glass bank and the focus is on customer satisfaction and a moderate risk-return philosophy. The emphasis on this approach is on the agent. The third approach to risk, views risk as a mixture of both system or structure and agent. This approach was most common among the other three (3) smaller banks. Fairly equal weight was ascribed to understanding risk as a social force and measuring it as a wealth creator. In each case, the role of the agent was recognised but the importance of the agent in reproducing organizational outcome is different. This study also finds that the changes made to the risk management system after the financial crisis reflects an intensification of the old procedures in all of the banks. This, is a mostly because bank managers do not believe that the system is inherently flawed (as argued by McGoun 1995) but rather needs to be improved and perfected.