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Answer: Banks were encouraged to establish an independent risk management function with access to the board of directors.
The correct answer is B. One of the key governance recommendations is that banks should establish an independent risk management function with access to the board of directors. This prevents the risk function from being suppressed, as it would be if it was subordinate to other divisions such as trading operations, and ensures that the board is advised of risk issues.
Author: LeetQuiz Editorial Team
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A recent recruit in training to become an examiner for a national banking supervisory authority has been assigned the duty of explaining the development of banking regulations following the 2007-2009 financial crisis and their role in enhancing risk governance. Which of the following most accurately reflects an impact of the regulatory changes that were implemented as a result of the crisis?
A
Banks were required to securitize all the mortgages they originate in order to distribute risk across financial institutions.
B
Banks were encouraged to establish an independent risk management function with access to the board of directors.
C
Proprietary trading operations were merged with traditional banking operations to provide banks better governance over their trading desks.
D
Derivatives were encouraged to be traded OTC rather than centrally cleared to provide greater transparency.