Bank risk management:

How do bank employees deal with risk at the

strategic and operational levels?

Alexander Rad

Main supervisor: Peter Öhman

Co-supervisor: Darush Yazdanfar

Faculty of Human Sciences

Thesis for the degree of Doctor of Philosophy, Ph.D.
Mid Sweden University
Sundsvall, 2017-06-05
Akademisk avhandling som med tillstånd av Mittuniversitetet i Sundsvall
framläggs till offentlig granskning för avläggande av ekonomie doktorsexamen
den 5 juni 2017 kl. 13 i sal M102, Mittuniversitetet Sundsvall. Seminariet
kommer att hållas på svenska.

Bank risk management: How do bank employees deal with risk at the
strategic and operational levels?

© Alexander Rad, 2017-06-05

Printed by Mid Sweden University, Sundsvall
ISSN: 978-91-88527-16-5
ISBN: 1652-893X

Faculty of Human Sciences

Mid Sweden University, Holmgatan 10, 851 70 Sundsvall, Sweden
Phone: +46 (0)10 142 80 00
Mid Sweden University Doctoral Thesis 263
To Constantin
Acknowledgement
My greatest appreciation goes to two research institutions, namely, the
Centre for Research on Economic Relations (CER) at Mid Sweden University
and the Gothenburg Research Institute (GRI) at Gothenburg University,
which hosted my research and provided ample resources.
My main supervisor Peter Öhman has generously guided and supported
me through both good and rough times – thank you, Peter!
On the journey of attaining a PhD, people matter, greatly. Not people in
general, but people who care and engage, and not for financial reward, but
for many and diverse reasons. Here I will name just some whom I vividly
remember and describe their caring and support. Before even starting my
employment at Mid Sweden University in 2009, Stein Kleppesto and Niclas
Andrén, both of Lund University, helped me ignite the torch at the start of
this journey. Braem Sager provided fuel for the torch while I was waiting for
appropriate employment. My brother Foad and my good friend Mikael
Lindberg provided shelter, helping me shield the torch from storms along
the journey that I had accidently embarked on.
Regarding the three strategic-level papers, Gunnar Wahlström walked
with me on field trips, Rolf Solli provided access to resources at GRI, and
Sten Jönsson and later Gudrun Baldvinsdottir offered personal insights and
constructive feedback. As far as the operational-level papers are concerned, I
would like to extend my appreciation to my research team and to my co-
authors Peter Öhman, Olof Wahlberg, and Darush Yazdanfar. Regarding the
thesis in general, Gunnar Wahlström, Gunnar Augustsson, and Jesper
Blomberg directed me towards the final destination at initial stops along the
journey. Towards the end, Anna-Karin Stockenstrand, Martin Johanson, and
Heléne Lundberg took time and offered suggestions for further
improvements. Over those years, numerous colleagues at Mid Sweden
University offered intellectual and moral support, and I had the pleasure of
having Darush Yazdanfar as a co-supervisor. Not to forget, Stephen Sanborn
provided valuable editorial assistance. Thank you all – I will not forget your
support!
In ending, I would like to extend my best wishes to my fellow doctoral
students Anne, Belén, Emelie, Habib, Lina, Magnus, Marta, Mustafa,
Stylianos, and Åsa: I hope you persevere through the hardships of your
individual journeys.

v
Table of contents
Acknowledgement .............................................................................................. v

List of tables ...................................................................................................... xi

List of figures ..................................................................................................... xi

Glossary of abbreviations ................................................................................ xi

Abstract ............................................................................................................. xii

Sammanfattning på svenska ........................................................................... xv

List of papers .................................................................................................. xvii

1 Introduction ...................................................................................................... 1
1.1 Risk management practices in banks ............................................................. 1
1.2 Banks, bank lending, and bank employees .................................................... 5
1.2.1 The importance of banks ..................................................................... 5
1.2.2 The importance of bank lending ........................................................... 6
1.2.3 The importance of bank employees ..................................................... 8
1.3 Research aim and questions .......................................................................... 9

2 Frame of reference ........................................................................................ 12

2.1 Risk management research drivers .............................................................. 12
2.2 Environmental context .................................................................................. 14
2.2.1 Banking laws ...................................................................................... 14
2.2.2 The Basel Accords ............................................................................. 15
2.2.3 Banking crises .................................................................................... 20
2.3 Changes in the banking industry .................................................................. 22
2.4 Bank lending ................................................................................................. 24
2.4.1 Various types of bank risks ................................................................ 25
2.4.2 Tasks and procedures in bank lending .............................................. 25
2.4.3 Interbank lending ............................................................................... 28
2.4.4 SME lending ....................................................................................... 33
2.5 Bank employees ........................................................................................... 37
2.5.1 Bank employees at the strategic level ............................................... 37
 2.5.2 Bank employees at the operational level ........................................... 41

3 Methodological considerations .................................................................... 45

3.1 Overview of research method ....................................................................... 45
3.2 Research philosophy .................................................................................... 47
3.3 Methodological choices ................................................................................ 49
3.3.1 Mixed methods ................................................................................... 49
3.3.2 Interviews ........................................................................................... 50
3.3.3 The repertory grid technique .............................................................. 51
3.3.4 Selection of banks .............................................................................. 52
3.4 Research strategy ........................................................................................ 52
3.4.1 Strategic-level studies ........................................................................ 52
3.4.2 Operational-level studies ................................................................... 54
3.5 Data collection and analysis ......................................................................... 55
3.5.1 Data collection and analysis for the strategic-level studies................ 55
3.5.2 Data collection and analysis for the operational-level studies ........... 59
3.6 Research quality ........................................................................................... 63
3.6.1 Limitations .......................................................................................... 63
3.6.2 Validity and reliability of the strategic-level studies ............................ 64
3.6.3 Validity and reliability of the operational-level studies........................ 67

4 Overview of the papers ................................................................................. 69

4.1 Strategic-level papers ................................................................................... 69
4.1.1 Paper 1 .............................................................................................. 69
4.1.2 Paper 2 .............................................................................................. 71
4.1.3 Paper 3 .............................................................................................. 73
4.2 Operational-level papers .............................................................................. 74
4.2.1 Paper 4 .............................................................................................. 74
4.2.2 Paper 5 .............................................................................................. 77

5 Concluding discussion ................................................................................. 79

5.1 The point of departure .................................................................................. 79
5.2 Dealing with risk at the strategic level .......................................................... 80
5.2.1 Designing interactions ........................................................................ 80
 5.2.2 Information augmentation .................................................................. 82
5.3 Dealing with risk at the operational level ...................................................... 84
5.4 Implications ................................................................................................... 86
5.4.1 Theoretical implications ..................................................................... 86
5.4.2 Practical implications ......................................................................... 88
5.4.3 Methodological implications ............................................................... 91
5.5 Suggestions for future research ................................................................... 92

References ........................................................................................................ 95

Appendix A ...................................................................................................... 131

Appendix B ...................................................................................................... 132

Appendix C ...................................................................................................... 134

Appendix D ...................................................................................................... 135

Appendix E ...................................................................................................... 137

Appendix G ..................................................................................................... 139

The papers ...................................................................................................... 140

List of tables
Table 1: Bank lending in Sweden ......................................................................................... 6
Table 2: Overview of the research process ........................................................................ 46
Table 3: Overview of techniques employed to address RQ1 .......................................... 56
Table 4: Overview of techniques employed to address RQ2 .......................................... 60

List of figures
Figure 1: The aims of papers 1–3. ....................................................................................... 10
Figure 2: The aims of papers 4 and 5. ................................................................................ 11
Figure 3: Interbank lending in Sweden from August to December 2008. ..................... 32
Figure 4: Company lending in Sweden from August 2008 to December 2010. ............ 36
Figure 5: The mean grid (adapted from paper 4). ............................................................ 75

Glossary of abbreviations
Chef executive officer (CEO)
Chief risk officer (CRO)
Enterprise risk management (ERM)
The Financial Times Stock Exchange (FTSE)
Group of Twenty Finance Ministers and Central Bank Governors (G20)
Gross domestic product (GDP)
Global financial crisis (GFC)
Inter-organizational relationship (IOR)
Lending/loan officer (LO)
London Interbank Offered Interest Rate (LIBOR)
Management control system (MCS)
Repertory grid technique (RGT)
Research question (RQ)
Risk management (RM)
Swedish Crown (SEK)
Small and medium-sized enterprises (SMEs)
Swedish Financial Supervisory Authority (Swedish FSA)
United States (USA)
United States Dollar (USD)
United Kingdom (UK)

xi
Abstract
Bank risk management, the subject of this dissertation, is about standards,
procedures, and processes for identifying, analysing, controlling, and monitoring
risks. It is affected by risk management standards, promoted by banking laws, such
as the Basel Accords, which are intended to offer advantages to bank employees.
These employees, however, perceive that such standards are associated with
practical challenges that entail risks. Previous studies have found that different bank
employees may perceive the practical challenges associated with risk management
standards in different ways. However, previous studies have rarely examined bank
employees’ intentions and, equally, have not examined bank employees’ perceptions
after the global financial crisis (GFC), an event said to have reflected bank risk
management failures and to have negatively affected bank lending. Central to the
present research is the literature’s limited attention to bank lending practices in terms
of bank loans to financial institutions (e.g., banks) and to companies (e.g., small and
medium-sized enterprises – SMEs).
The overall research aim is to examine the perceptions and intentions of bank
employees at different organizational levels during a banking crisis in order to foster
understanding of bank risk management. This aim is divided into two research areas,
leading to the formulation of two research questions (RQs): RQ1 – How do top bank
managers deal with risk during a banking crisis? RQ2 – How do bank loan officers
deal with risk during a banking crisis? In response to RQ1, three strategic-level
studies were conducted. The related papers 1 and 2 explore bank lending to
companies, while paper 3 explores bank lending to financial institutions. To respond
to RQ2, two operational-level studies were conducted, and the related papers 4 and 5
address bank lending to SMEs.
The thesis starts from a critical realist position, employing an eclectic theoretical
approach and using mixed methods in conducting the studies. The strategic-level
studies collected data through 52 semi-structured interviews with top management
and high-ranking officers employed at three large Swedish banks and at key banking
industry institutions. The data collection also entailed reviewing the annual reports
of two banks over the 1990–2010 period, government and central bank reports, as
well as various statistics. The data were analysed using qualitative research
techniques. For triangulation purposes, follow-up interviews and engagement with
the field were incorporated into the data collection and analysis. For the two
operational-level studies, data were collected using the repertory grid technique
when interviewing 75 bank loan officers employed at another large Swedish bank. In
addition, data were collected on the bank loan officers’ backgrounds. The data
analysis included statistical analyses and related interpretations. For triangulation
purposes, three pre-studies, a pilot study, six retests, and a focus group interview
were conducted. In addition, the bank loan officers’ individual cognitive maps were

xii
aggregated to provide a holistic overview of these employees’ perceptions at the
group level.
The overall conclusion of the strategic-level studies is that top bank managers
deal with risk through designing control system interactions and through
information augmentation.
Designing control system interactions – When top bank managers implement the
Basel Accords, they must make design choices regarding the interaction between
various control systems. Such design considerations are important in order to ensure
that the application of the standards is in line with bank business strategy.
Furthermore, in designing control system interactions, top bank managers draw on
various bases of trust when dealing with risk. In theory, trust arises from distinct
sources; in practice, however, bank employees perceive trust to be intertwined with
relationships with counterparties and third parties.
Information augmentation was evident in the way top bank managers enhanced the
information-processing capacities of the group risk control office and imposed limits
on this office’s interactions with operational-level employees, thereby improving
information flows before decision making. Information augmentation was further
evident in how top bank managers drew on network relationships in the banking
industry to ensure access to and use of relevant information during a large-scale
banking crisis.
The overall conclusion from the operational-level studies is that bank loan
officers manage risk by adhering to procedural lending, meaning that they collectively
rely on hard and future-oriented information and that they collectively downplay
soft and historical information in assessing loan applications from SMEs. These
findings indicate that the Basel Accords, the bank’s lending strategy, and the
information system orient bank loan officers’ perceptions of the involved
assessments. In contrast to previous studies, this thesis presents findings that
different types of bank loans, such as those for starting up business, supporting
underperforming operations, and financing business expansions, are assessed in a
similar way. Procedural-based lending further implies that few distinctions were
made between various groups of bank loan officers. One significant distinction was
made in regard to female and male bank loan officers’ assessments.
The thesis presents theoretical, practical, and methodological implications and
offers suggestions for further research into the important and developing area of
bank risk management.

Keywords: Banks, Bank employees, Bank lending, Risk management, the Basel
Accords, Global financial crisis.

xiii
Sammanfattning på svenska
Denna avhandling handlar om riskhantering i bank. Riskhantering som fenomen
omfattar standarder, arbetssätt och processer för att identifiera, analysera, kontrollera
och övervaka risker. Riskhantering i bank har kommit att påverkas av
riskhanteringsramverk såsom den s.k. Basel-standarden. Detta ramverk avser att
förbättra bankanställdas beslutsfattande och kontroll-möjligheter, samtidigt som
bankanställda uppfattar att det förekommer praktiska problem. Tidigare studier har
funnit att bankanställda kan uppfatta de praktiska problemen med
riskhanteringsramverken på olika sätt. Däremot har tidigare studier inte undersökt
bankanställdas avsikter gällande användningen av ramverken och heller inte deras
uppfattningar avseende de praktiska problemen efter den globala finanskrisen,
vilken anses vara ett resultat av bankers misslyckade riskhantering och som kommit
att påverka både regleringen av banker och deras kreditgivning. Något som
ytterligare motiverar denna avhandling är tidigare studiers begränsade insyn i
bankers kreditgivning till finansiella institut (såsom banker) samt företag (såsom små
och medelstora företag).
Det övergripande syftet med avhandlingen är att undersöka bank-anställdas
uppfattningar och avsikter på olika organisatoriska nivåer i anslutning till den
globala finanskrisen för att skapa en förståelse för riskhantering i bank. För att uppnå
syftet särskiljs två forskningsområden kopplade till två forskningsfrågor. Fråga 1 –
Hur hanterar toppchefer risk under en bankkris? Fråga 2 – Hur hanterar kreditgivare
risk under en bankkris? För att besvara den första forskningsfrågan genomfördes tre
studier på strategisk nivå, vilka resulterade i tre artiklar. Artiklarna 1 och 2 handlar
om kreditgivning till företag och artikel 3 om kreditgivning till finansiella institut.
För att besvara den andra forskningsfrågan genomfördes två studier på operationell
nivå. Artiklarna 4 och 5 behandlar kreditgivning till små och medelstora företag.
Avhandlingen utgår från kritisk realism, en eklektisk teoriansats och den
använder blandade metoder. Studierna på strategisk nivå grundade sig på data från
semi-strukturerade intervjuer med 52 toppchefer och andra anställda på höga
positioner vid tre svenska storbanker och andra viktiga institutioner inom
bankbranschen. Data samlades in även i form av årsredovisningar för perioden 1990-
2010 samt rapporter och statistik från myndigheter och centralbanker. Insamlad data
analyserades med hjälp av kvalitativa metoder. Därtill förfinades analyserna genom
uppföljnings-intervjuer. Studierna på operationell nivå föregicks av tre förstudier och
en pilotstudie och baserades sedan på intervjuer med 75 kreditgivare vid en annan
svensk storbank och den s.k. repertory grid-tekniken. Data insamlades in även i form
av frågor om kreditgivarnas bakgrund och kompletterande öppna frågor. Insamlad
data analyserades statistiskt med därtill kopplade tolkningar och kreditgivarnas
uppfattningar analyserades på gruppnivå för att fånga en holistisk bild. Resultaten

xv
valideras med hjälp av sex upprepade mätningar (s.k. retester) och en
fokusgruppintervju.
Slutsatserna från studierna på strategisk nivå är att toppchefer primärt hanterar
risk genom att designa samspel mellan kontrollsystem och genom att förbättra
information och beslutsunderlag.
Design av samspelande kontrollsystem är en följd av att toppcheferna betraktade
implementeringen av Basel-standarden som något som både påverkade och
påverkades av andra kontrollsystem. En samspelande design är viktig för att så långt
som möjligt säkerställa att användningen av riskhanteringsramverket ligger i linje
med affärsstrategierna. Vidare spelar förtroende en viktig roll när toppcheferna
hanterar risk. Enligt teori uppstår förtroende på olika grunder, men denna
avhandling visar att bankanställda på strategisk nivå uppfattar att förtroende i
praktiken är sammanflätat i relationer med direkta så väl som indirekta parter.
Resultaten visar också att toppcheferna utökade informationshanterings-
kapaciteten hos den s.k. gruppriskkontrollfunktionen på strategisk nivå och att de
samtidigt införde begränsningar i denna funktions möjligheter att påverka anställda
på operationell nivå. Härigenom ansåg toppcheferna att de uppnådde en nödvändig
informationsförbättring före beslut avseende kreditgivning på bankkontoren. Vidare
utgick toppcheferna från närverks-relationer för att säkerställa tillgången till och
användningen av relevant information för beslutsfattande avseende kreditgivning på
interbank-marknaden under den globala finanskrisen.
Slutsatserna från studierna på operationell nivå är att kredithandläggare hanterar
risk genom att hålla sig till etablerade arbetssätt för kreditgivning. Vid
kreditbedömningar avseende små och medelstora företag tenderar kredit-
handläggare att kollektivt förlita sig på hård och framtidsorienterad information,
samtidigt som de tonar ned behovet av mjuk och historisk information. Denna
procedurbetonade kreditgivning grundar sig på betoningen på Basel-standarden,
bankens utlåningsstrategi samt styr- och kontrollsystem, vilka alla primärt styr
kredithandläggarnas uppfattning om bedömningen av lånepropåer från små och
medelstora företag. I motsats till andra studier visar resultaten också att olika typer
av lån – finansiering av nystartade verksamheter, tilläggsfinansiering för expansion
och tilläggsfinansiering för att rädda verksamheten – bedöms på ungefär samma sätt.
En procedurbetonad kreditgivning gör också att få skillnader går att skönja mellan
olika grupper av kredithandläggare. En funnen skillnad mellan kvinnliga och
manliga kredithandläggare diskuteras utifrån tidigare studiers slutsatser om dessa
gruppers tendens för olika riskbenägenhet.
Avhandlingen bidrar med teoretiska, praktiska och metodologiska implikationer
samt förslag på vidare forskning inom detta både viktiga och spännande område.

Nyckelord: Banker, Bankanställda, Basel-standarden, den globala finanskrisen,

Kreditgivning, Riskhantering.

xvi
List of papers
This thesis is based on the following five papers, herein referred to by their
numbers:

Paper 1 Rad, A. (2016), Risk management–control system interplay:

Case studies of two banks. Journal of Accounting and Organizational Change,
12(4), 522–546.*

Paper 2 Rad, A. (2016), Basel II and the associated uncertainties for

banking practices. Qualitative Research in Financial Markets, 8(3), 229–245.*

Paper 3 Rad, A. (2017, forthcoming), The importance of trust for inter-

organizational relationships: A study of interbank market practices in a crisis.
Accepted for publication in Qualitative Research in Accounting & Management,
14(3).*

Paper 4 Rad, A., Wahlberg, O., & Öhman, P. (2013), How lending
officers construe assessments of small and medium-sized enterprise loan
applications: A repertory grid study. Journal of Constructivist Psychology, 26
(4), 262–279.*

Paper 5 Rad, A., Yazdanfar, D., & Öhman, P. (2014), Female and male
risk aversion: An empirical study of loan officers’ assessment of SME loan
applications. International Journal of Gender and Entrepreneurship, 6(2), 121–
141.*

* The publishers have permitted reprints.

xvii
1 Introduction
1.1 Risk management practices in banks
Risk has always been an important research theme (Beck, 1992; Bernoulli,
1738/1954; Douglas & Wildavsky, 1983; Giddens, 1994; Jensen & Meckling,
1976; Kahneman & Tversky, 1979; March & Shapira, 1987; Markowitz, 1991;
Power, 2016; Rothstein, Huber, & Gaskell, 2006) and is also a pressing matter
in several industries (Huber & Rothstein, 2013; Power, 2004b; Renn, 1998;
Soin, C. Huber, Sorgaard, & Wheatley, 2016; Woods, 2009). This thesis views
risk in the context of banks.
In line with March and Shapira (1987), the thesis holds that risk is a
phenomenon that does not exist objectively; instead, managers interpret risk
subjectively in terms of negative outcomes. From this perspective, dealing
with risk is about designing, implementing, and using appropriate controls
as well as gathering and assessing relevant information (MacCrimmon &
Wehrung, 1990). As risk is embedded in managerial processes in specific
organizations, dealing with risk is context dependent. This context
dependency is confirmed by studies of managers’ interpretations of risk in
different industrial settings (cf. Pablo, 1999) and emphasized in accounting
and management control research (Bhimani, 2009; Hutter & Power, 2005; R.
S. Kaplan & Mikes, 2016).
Moreover, this thesis addresses risk management, i.e., standards,
procedures, and processes for identifying, analysing, controlling, and
monitoring risks in banks. In doing this, I follow the example of influential
researchers (e.g., Blomberg, 2016; Blomberg, Kjellberg, & Winroth, 2013; M.
Hall, Mikes, & Millo, 2015; Mikes, 2009, 2011; Wahlström, 2006, 2009b) who
have recognized that, in practice, bank risk management is strongly
influenced by risk management standards (hereafter, “standards”). One
such standard is called enterprise risk management (ERM), which is
promoted by the audit association the Committee of Sponsoring
Organizations, better known as COSO. 1 According to Beasley, Clune, and
Hermanson (2005), this standard is intended to address various risks that
appear in organizations and need to be dealt with objectively. Studies

1
ERM is a process implemented by an entity’s board of directors, management,
and other personnel and applied in strategy setting across the enterprise. It is
designed to identify potential events that could affect the entity, to manage risk to
keep it within the entity’s “risk appetite”, and to provide reasonable assurance of
the achievement of entity objectives (Frigo & Anderson, 2011).

1
indicate that, relative to other industries, banks are forerunners in applying
this standard (Beasley et al., 2005; Greenbaum, 2012). There are, however,
indications that this standard is somewhat ambiguous (Arena, Arnaboldi, &
Azzone, 2010; Arena, Arnaboldi, & Azzone, 2011; Bromiley, McShane, Nair,
& Rustambekov, 2015).
Rather than on ERM, this thesis concentrates on another commonly used
standard, the Basel Accords, 2 which unlike the ERM standards are based on
detailed rules set forth in banking laws imposed by regulators, which expect
compliance (Gray & Hamilton, 2006). The goals of the Basel Accords are to
harmonize the supervision, management, and reporting of bank risks
internationally (Basel Committee on Banking Supervision, 1999, 2006, 2010;
European Commission, 2016; Ojo, 2010b; Toniolo & Clement, 2005). The
Basel Accords thereby operate on the basis of ideas similar to international
accounting standards (cf. Stockenstrand & Nilsson, 2016).
Researchers (e.g., Arena & Arnaboldi, 2014; Arena et al., 2010, 2011;
Giovannoni, Quarchioni, & Riccaboni, 2016; M. Hall et al., 2015; Mikes, 2009,
2011; Scheytt, Soin, Sahlin-Andersson, & Power, 2006; Wahlström, 2006,
2009a, 2009b) envisage standards such as the Basel Accords as an advance in
accounting and management control. These advances are relevant at various
organizational levels. At the strategic level, bank employees could expect
interactive surveillance opportunities, beyond those of traditional financial
control instruments (e.g., budgets), from using information provided by the
Basel Accords. These employees could also expect opportunities for
sophisticated performance control that improves alignment between
strategies and operational activities. At the operational level, bank
employees could enjoy efficiency in their day-to-day decision making.
Although the Basel Accords are intended to offer advantages, accounting
and management control researchers (e.g., Scheytt et al., 2006; Soin et al.,
2016) have emphasized the other side of the coin. They argue that the use of
standards generates at least three risk themes for bank employees:

• risk that appears in the complex interactions between

regulations and practice,
• (un)intended production of risk by the organization itself,
and
• risk that appears through evolving and emerging events.

2
To date, there have been four Basel Accords (i.e., Basel I–IV), two of which have
been enacted.

2
 These risk themes have already motivated some research. Among the
abovementioned researchers interested in standards, Wahlström (2009b) has
noted that employees of various banks did not envisage similar advantages
accruing from the Basel Accords (specifically, Basel II). Employees of one
bank expected that the standard would induce centralization and negatively
change the bank’s management style, while employees of other banks
expected positive outcomes of centralization as a result of Basel Accord
implementation.
The different expectations of the Basel Accords have led to various levels
of aspiration to implement the standard in banks. According to Brown,
Giorgi, and Sim (2012), aspiration levels involve managerial interpretations
of risk, such as the risk of not meeting targets, and play a key role in
individual decision making regarding the use of externally imposed
requirements. Different aspiration levels regarding the implementation of
standards have also been observed in studies of the ERM standard. For
example, Mikes (2009, 2011) found that employees of five investigated banks
had different attitudes towards this standard, distinguished by enthusiasm
or pessimism. Taken together, Wahlström’s (2009b) and Mikes’ (2009, 2011)
findings confirm the relevance of the first risk theme, i.e., that risk arises in
the complex interactions between regulations and practice.
Wahlström (2006) has further reported that bank employees perceive
practical challenges to implementing the Basel Accords (specifically Basel I)
in terms of the production of unintended risk within the organization. In a
similar vein, Soin (2004) and Arena et al. (2010, 2011) found that the
implementation of standards calls for integration with existing information
systems, possibly interfering with existing control systems and practices.
These systems can be used for various purposes, such as cost control and
performance optimization. Moreover, when studying senior bank managers
in the emerging phases of the global financial crisis (GFC), 3 Wahlström
(2009a) found that they faced risk that emerged during this evolving event,
and therefore rejected using information provided by the Basel Accords,
such as various risk-based measures. The above findings confirm the
relevance of considering the second and third risk themes, i.e., (un)intended
production of risk by the organization itself and risk that emerges from
evolving events.
In 2009 when I began work on this thesis, influential researchers had
made calls to address research gaps. For example, Hopwood (2009b, p. 549)
remarked on the “growing distance of the academic finance knowledge base

3
As will be presented, the GFC included a large-scale banking crisis in the late 00s.

3
from the complexities of practice and practical institutions”. While working
on the thesis, I also noted that literature reviews (e.g., Gooneratne & Hoque,
2013; Harris & Durden, 2012; Wilson, Casu, Girardone, & Molyneux, 2010),
and special issues (e.g., Bhimani, 2009; Scheytt et al., 2006) reiterated that the
literature did not contain a substantial volume of findings about bank risk
management practices. More recently, Humphries (2015) reported that the
British Academy of Management had noted that elite journals 4 had yet to
publish a substantive paper dealing with the GFC and I had also noted that
bank risk management was said to have failed during the crisis.
It is worth mentioning that the GFC has been compared to the Great
Depression of the 1930s (Reinhart & Rogoff, 2008). Public records as well as
studies refer to massive unemployment, reduced productivity, and large
contractions in trade volumes. Records also note numerous banking defaults
and financial instability in multiple European countries, such as Portugal,
Italy, Greece, and Spain (Bussière, 2013; NBER, 2010; The Crisis Inquiry
Report, 2011; The Federal Deposit Insurance Corporation, 2016).
This thesis responds to indications of research gaps and related calls for
research. The lack of studies of bank risk management practices, especially
in the aftermath of the GFC, has already been mentioned. Moreover,
Wahlström (2009b) and other accounting and management control
researchers have not distinguished between the application of the Basel
Accords and the associated practical challenges with respect to different
organizational levels. Instead, they have collected data at one organizational
level at a time. In contrast, this thesis considers both the strategic and
operational levels.
Moreover, this thesis targets both the perceptions and intentions of bank
employees regarding bank risk management. Since at least the 1970s,
accounting and management control researchers (e.g., Hopwood, 1972) have
successfully targeted employee perceptions. Previous studies of the
advances and practical challenges associated with the Basel Accords (e.g.
Wahlström, 2006, 2009b) have also considered bank employee perceptions.
According to Tessier and Otley (2012), employee perceptions refer to
interpretations of what control is for (e.g., enabling or constraining: cf. P. S.
Adler & Borys, 1996), suggesting that bank risk management can be
perceived in different ways by different bank employees. According to
Slovic (1987), perceptions can be assumed to be stable. However, perceptions
may be limited to the available information, i.e., characterized by bounded

4
For example, Academy of Management Review, Academy of Management
Journal, Administrative Science Quarterly, and Organization Science.

4
rationality (Simon, 1947/1997). Moreover, bank employees’ perceptions are
expected to be influenced by the environment surrounding them and their
organizations, and that may not be controllable in every respect (Scott, 2007).
According to Tessier and Otley (2012), employees’ intentions refer to
what managers are trying to achieve by implementing a certain form of
control. Intentions, unlike perceptions, are a design attribute as such and
merely related to the choice of control measures (e.g., social versus technical
control: cf. Alvesson and Kärreman, 2004). Intentions are also related to the
goal of control measures, for example, performance versus compliance.
Moreover, intentions focus on the choices regarding the intended use of the
control measures, which can range from interactive to diagnostic (Simons,
1995).

1.2 Banks, bank lending, and bank employees

In the following subsections, I present the empirical rationales for
researching banks, bank lending, and bank employees.

1.2.1 The importance of banks

Banks are considered important economic vehicles in Sweden and elsewhere
(F. Allen & Carletti, 2008). A very simple way of understanding banks’
importance in society is to consider the extent of the business and
employment that banks generate. The Swedish banking industry comprises
116 banks, and the four largest domestic commercial banks – SEB, Svenska
Handelsbanken, Nordea, and Swedbank – together have around 1644
branches and employ approximately 40,000 people worldwide (The Swedish
Bankers Association, 2016). The four largest Swedish banks are in focus in
this thesis, although they are not mentioned by name in the various studies.
Throughout history, links between banks and economic growth have
been observed in various countries (Burhop, 2006; Quinn, 1997; Rodriguez &
Andersson, 2011; Smith, 1776). Given the link between banks and economic
growth, the importance of banks can be estimated by measuring their
contribution to economic output. The American Bankers Association (2013)
reported that banks account for approximately 7.6 per cent of the gross
domestic product (GDP) of the United States (USA), while the British
Bankers Association (2015) reported a contribution of 4.9 per cent in the
United Kingdom (UK) and the Swedish Bankers Association (2016) a
contribution of 4.8 per cent in Sweden.
Another way of appreciating the importance of banks, in a way that is
more interesting in the context of this thesis, is to consider the

5
intermediation they are involved in (F. Allen & Carletti, 2008). The output of
this intermediation is credit/loans. 5 Intermediation occurs as banks, via
credit, channel money from sectors having surpluses of money (e.g.,
depositors) to sectors requiring money (Levine, 1997). Credit is crucial to
societal development (Green, Kwong, & Tigges, 1995; Nabi & Suliman,
2009).

1.2.2 The importance of bank lending

Previous research into bank risk management practices has not concentrated
on bank lending, though researchers have sometimes examined other
operations such as investment banking (Blomberg, 2016; Blomberg et al.,
2013). To give a sense of the importance of bank lending, it is recorded that
bank lending involves colossal amounts of money. Table 1 gives an
impression of the magnitude of bank lending in Sweden, showing that the
total amount of Swedish banks’ outstanding domestic loans on 31 December
2015 was SEK 6128 billion (The Swedish Bankers Association, 2016). 6

Table 1: Bank lending in Sweden

Sectors SEK billions

Financial institutions 2310
Foreign markets 1256
Companies 1249
Households 1138
Local governments 100
Other 7 75
Total 6128

5
In this thesis, I use the terms credit and loans interchangeably.
6
SEK refers to Swedish Crowns.
7
“Other” includes minor domestic finance companies not classified as financial
institutions.

6
 This thesis has a dual focus: bank lending to financial institutions (i.e.,
interbank lending) and bank lending to companies, including small and
medium-sized enterprises (SMEs). Financial institutions can be of various
types 8 In Sweden, 95% of the transactions between domestic financial
institutions take place between banks (Statistics Sweden, 2016). A company
is any firm or any individual who runs a commercial business. As of January
2017, there were approximately 1,200,000 companies registered in Sweden
(Swedish Statistics, 2017). Statistics indicate that SMEs – companies with
fewer than 250 employees – account for over 99 per cent of the registered
companies in Sweden.
I examine interbank lending and SME lending more comprehensively in
subsections 2.4.3 and 2.4.4, respectively. For now it should be noted that my
concentration on bank lending of these two types is motivated by the fact
that financial institutions and companies require credit for similar purposes,
such as funding ongoing operations and financing new investments.
Because loans between financial institutions are interest bearing, they are
considered liquidity creating and therefore critical for economic growth
(Berger & Bouwman, 2009). When it comes to bank lending to companies,
several studies (e.g., Bruns & Fletcher, 2008) have found that Swedish banks
meet up to 50 per cent of SMEs’ financing needs through extending credit. In
addition, as Table 1 indicates, a substantial portion of total domestic lending
(approximately 58 per cent) is absorbed by these two sectors. This
preponderance of lending to companies holds for other developed countries
as well. For example, US banks extend $8000 billion in loans annually, of
which 49 per cent is directed towards companies (The American Bankers
Association, 2013).
Households and local governments (e.g., municipalities) require credit
for other purposes. For example, the household sector may require loans to
finance mortgages, auto purchases, and consumption. As shown in Table 1,
Swedish banks are also involved in foreign lending, which includes credit
extended to financial institutions, companies, households, and local
governments in foreign countries.
From the perspective of business administration theories, bank lending
operates under a “capitalist rationality” (cf. Schumpeter, 1934), meaning that
banks pursue interest and fees and attempt to reduce costs. At the same
time, bank lending can lead to losses. As confirmed by various studies (e.g.,

8According to the Swedish central bank: banks, mortgage institutions, financial

service companies, municipal and corporate-financed institutions, securities
companies, and investment funds.

7
DeYoung, 2010), many bank losses are related to bank lending. Losses (i.e.,
credit losses) arise when borrowers behave opportunistically and/or perform
poorly in terms of stipulated repayment obligations (Stiglitz & Weiss, 1981).

1.2.3 The importance of bank employees

When I started working on this thesis, public attention was turned towards
bank employees and there was ample questioning of their work and
character (Jönsson, 2014). The title of Stiglitz’s (2010) Who Do These Bankers
Think They Are? illustrates this to some extent. In a similar vein, Engwall
(1995) argued that the “cause” of the Swedish banking crisis in the 1990s was
that bank managers lacked professionalism. Accordingly, it seems to be
common for the public to turn their attention towards bank employees.
According to Perrow (1984), crisis “post mortems” blame operator error 60
to 80 per cent of the time. It must be mentioned that banks, to some extent,
have reacted to such questioning and negative attention; for example,
during the GFC, Merrill Lynch replaced its chief executive officer (CEO) (R.
Smith & Lucchetti, 2007).
In terms of bank employees at the strategic level, this thesis focuses on
top bank management, which comprises the management team and the
board (cf. Olie & van Iterson, 2003). In terms of bank employees at the
operational level, it focuses on bank loan officers dealing with commercial
credit at branch offices (cf. Bruns & Fletcher, 2008; F. Wilson, Carter, Tagg,
Shaw, & Lam, 2007). In the following, I present an overview of top bank
managers’ and bank loan officers’ responsibilities in large banks,
acknowledging that these responsibilities are formally structured around
specific tasks.
According to Kipping and Westerhuis (2014), large banks assume a
multidivisional organizational structure. In this structure, top management
is expected to operate at the strategic level of the bank organization. Top
management can have various responsibilities, about which I provide more
details in subsection 2.4.2. For now it can be noted that top bank managers
are generally expected to take charge of business strategy. Sutcliffe and
McNamara (2001) have found that, in the bank lending context, strategy
involves ensuring the predictability of decisions and introducing policies for
standardization and consistency. In this context, strategy also involves
adapting to contemporary business trends, such as digitalization (Knorr
Cetina & Preda, 2011).
In theory, multidivisional organizational structure limits top bank
management from getting involved at the operational level (Williamson,

8
1975). However, studies (e.g., Argyris, 1954, 1958; Kipping & Westerhuis,
2014) have found that bank managers can get involved in particular cases
when lower-level employees seek advice on and approval of decisions.
Related to advice seeking, studies (e.g., DeYoung, Gron, Torna, & Winton,
2015; Westphal, Seidel, & Stewart, 2001) have found that economic
turbulence may hinder lower-level employees from locating relevant
information on borrowers. In such cases, top managers, via their
involvement in various settings (e.g., company boards), may access relevant
information more efficiently. In terms of approval, McNamara, Moon, and
Bromiley (2002) found that top bank managers need to approve loans
involving large amounts of money and exceed credit limits imposed on
lower organizational levels.
Given the multidivisional organizational structure of banks, bank loan
officers’ responsibilities are limited to a few specific tasks. In their study of
bank lending, Biggs, Bedard, Gaber, and Linsmeier (1985) found that bank
loan officers concentrated on gathering various kinds of information related
to company loan applications, and on assessing this information following
internal guidelines and regulatory policies. This finding was confirmed by
later studies (e.g., Mattsson, 1993; McNamara & Bromiley, 1997; Sutcliffe &
McNamara, 2001; Trönnberg & Hemlin, 2014). I explore this matter in more
detail in the next chapter. For now, it can be said that such information may
concern the wide range of circumstances and events that have occurred in
the past and may occur in the future (Berger & Udell, 2006). Bank loan
officers are also obliged to make requests for collateral (Berger & Udell, 1990;
Uchida, 2011). Collateral is intended to reduce the borrower’s incentive to
fail in the repayment obligations stipulated by the loan contract, and to
mitigate potential credit losses due to default and bankruptcy (Berger &
Udell, 2006).

1.3 Research aim and questions

Given the above discussion, I here present the overall research aim and the
research questions (RQs) of this thesis. The overall research aim is:

• to examine the perceptions and intentions of bank employees

at different organizational levels during a banking crisis in
order to foster an understanding of bank risk management
practices.

9
 This aim is addressed by two specific research questions (RQs),
formulated to address the strategic and operational levels, respectively;

• RQ1: How do top bank managers deal with risk at the

strategic level during a banking crisis?
• RQ2: How do bank loan officers deal with risk at the
operational during a banking crisis?

Three papers included in this thesis address RQ1 more specifically. Paper
1 examines the top management intentions underlying the implementation
and use of the Basel Accords at two banks. Particular attention is paid to the
practical challenges arising from the interaction between control systems.
Paper 2 examines bank employees’ perceptions of the Basel Accords and
their post-GFC actions intended to deal with the perceived practical
challenges. Paper 3 examines how bank employees at the strategic level
evaluate and assess potential financial institution borrowers in light of the
GFC. The three papers relate, in different ways, to the three previously
described risk themes.
Figure 1 presents the specific research aims of these three strategic-level
papers. The papers are summarized and discussed in chapters 4 and 5, and
are appended at the end of the thesis.

Paper 1 explores the risk management-control systems

interaction.
Paper 2 explores uncertainties in the interaction between Basel
II and banking practices.
Paper 3 explores risk management practices in interbank
lending during the GFC.

Figure 1: The aims of papers 1–3.

To address RQ2 more specifically, two specific studies were conducted,

reported in papers 4 and 5. Paper 4 examines how bank employees at the
operational level evaluate and assess potential SME borrowers. The
examination concentrates on analysing bank loan officers’ perceptions at the
time of the GFC. Paper 5 analyses some of the results of paper 4 by

10
considering the fact that female and male bank loan officers may treat risk in
different ways. The two papers relate to the second and third risk themes.
Figure 2 presents the specific research aims of these two papers. In
accordance with papers 1–3, the research findings of the operational-level
studies are summarized and discussed in chapters 4 and 5. The papers are
appended at the end of the thesis.

Paper 4 maps and analyses how 75 lending officers view their

assessments of SMEs´ loan applications.
Paper 5 analyses female and male loan officers’ risk aversion in
assessing different types of SME loan applications.

Figure 2: The aims of papers 4 and 5.

11
2 Frame of reference
This chapter presents literature relevant to understanding bank risk
management, starting by identifying the drivers of risk management
research. I then identify three inevitable contingencies in the environmental
context of banks, i.e., banking laws, the Basel Accords, and banking crises,
followed by a description of changes in the banking industry. This is
followed by an identification of bank lending issues. In the last section of the
chapter, I identify the responsibilities of bank employees at the strategic and
operational levels regarding bank lending.

2.1 Risk management research drivers

In the literature, I have identified three drivers of risk management research.
The first is the overall trajectory of philosophical and scientific development.
As early as 3200 BCE, the Asipu people of the Tigris–Euphrates Valley
sought guidance before making decisions regarding uncertain situations by
looking for signs from the gods (Covello & Mumpower, 1985). During the
Renaissance and later during the Enlightenment, new philosophical ideas
offered humans the option of abandoning deterministic conceptions like
those of the Asipue. These ideas suggested that humans are in a position to
create a better world and deal constructively with dangers and perils,
meaning that they need not put their fate in the hands of God (Bernstein,
1996).
Since the Renaissance and the Enlightenment, important scientific
discoveries have stimulated risk management research. Among the early
relevant discoveries, Hacking (1975) refers to probability theory: by
identifying the regularities of past outcomes of similar events, one can
estimate the probability of the outcome of an event. Since the seventeenth
century, several scientific discoveries have given risk management research
further momentum, including the normal distribution formula (De Moivre,
1733), utility theory (Bentham, 1879; Bernoulli, 1738/1954), and marginal
theory (Marshall, 1890). There was also Knight’s (1921) thesis that to
estimate the probability of the outcome of an event, one can use values
between 0 and 1. Nowadays risk management research is anchored in
numerous academic subject areas, including accounting (McGoun, 1995),
culture (Douglas & Wildavsky, 1983), finance (Jensen & Meckling, 1976;
Markowitz, 1991), managerial decision making (March & Shapira, 1987),
psychology (Kahneman & Tversky, 1979), and statistics (Hacking, 1975).

12
 The second driver is the application of risk measurement in various
industrial and commercial settings, including banks. Renn (1998) noted that
the first recorded instance of risk measurement was likely in the space
exploration programmes, chemical plants, and power plants that emerged in
the early 1950s. These industrial settings used risk measurement to become
more efficient in dealing with dangers in the safety and health areas.
Around this time, insurance companies were using risk measurement to
define proper coverage for clients (Mehr, Hedges, & Wood, 1964). In banks
and other financial institutions, risk management has been tightly linked
with the shareholder value conception of the firm, which “involves an
increasing technical and institutional focus on the risk measurement
dimension of the risk–return relations underlying shareholder value”
(Power, 2005, p. 250). Banking researchers have found that risk management
can help optimize banks’ financial performance and potential financial
stability, because the associated measurement and quantification can help
banks decide what risks to keep in loan portfolios and what risks to transfer
to other banks through, for example, securitization (Aebi, Sabato, & Schmid,
2012; Buston, 2015; Cebenoyan & Strahan, 2004).
The third driver is a growing desire for control, which Power (2004b) has
captured in the descriptive title of his paper “The risk management of
everything”. This desire for control emerged in reaction to a series of large-
scale corporate scandals (Power, 2007) and has been observed in various
industrial settings (Mikes & R. S. Kaplan, 2013) as well as in universities
(Huber & Rothstein, 2013) and government institutions (Vinnari & Skærbæk,
2014; Woods, 2009). As Power (2005) argued, through risk management,
internal control has been formalized. This formalization is expected to
provide opportunities to enhance managerial control, for example, via
improved forecasting, more sophisticated measurement indicators, faster
means of negative feedback, and greater stability (Beer, 1981; Holmquist,
2008; R. S. Kaplan & Norton, 1998; Vosselman, 2002). Moreover, this
formalized internal control gives rise to research more concerned with
organization design and practical challenges than with opportunities for risk
measurement as such. Practical challenges potentially erode the
opportunities to maximize shareholder value and, moreover, may hinder the
expansion of managerial control (Mikes, 2009, 2011; Power, 2009;
Wahlström, 2006, 2009b). This thesis intends to stay attuned to the perceived
advances and practical challenges of the third driver while examining bank
risk management. Previous studies motivated by this research driver have
approached practice, which is done in this thesis as well.

13
2.2 Environmental context
2.2.1 Banking laws
This subsection presents an overview of banking laws, which I find are
multiple, have been formed in various ways, and tend to change from time
to time. Bergstrom, Engwall, and Wallerstedt (1994) have presented an
overview of early banking laws in Sweden. That paper states that the first
banking laws appeared in Sweden in 1824, and included requirements
concerning the form of bank charters and restricted interest rate charges. The
aim of such banking laws is typically to protect borrowers. 9 Banking laws
are also intended to protect depositors, prevent systemic failures, and
prevent periods of inflation and recession (Barth, Caprio Jr, & Levine, 2013;
Flannery, 1998).
The further development of national banking laws in Sweden during the
00s came to centre on international agreements (Jackson, 1999). These
agreements required that the Swedish government sign contracts with other
national governments and with private institutions. For example, after the
end of World War II, the Bretton-Woods Agreement was introduced. It had
the objective of preventing the recurrence of the obvious effects of the Great
Depression of the 1930s. As a result, national banking laws were partly
replaced and partly complemented in the 44 countries that signed the
Agreement. This Agreement, however, collapsed in 1973 (Larsson &
Wallerstedt, 2015). It can be noted that a potential benefit of such
international agreements is the international convergence of banking laws,
which is intended to reduce opportunities for regulatory arbitrage, i.e.,
banks’ using loopholes in banking laws as a mechanism for circumventing
these laws (Ambrose, LaCour-Little, & Sanders, 2005; Härle, Havas, Kremer,
Rona, & Samandari, 2016; Jones, 2000).
Occasionally, governments may revoke banking laws to stimulate the
banking sector. 10 The deregulations of the 1980s were intended to spur
financial integration (Merton, 1995) and remove international regulatory
barriers to financial services (Grahl, 2006). The deregulations of the 1980s
were motivated by political agendas emphasizing less government

9
Hammurabi, the king of the first dynasty of Babylon around 1800 BCE, probably
authored the first banking law. His intention was also to protect borrowers by
restricting the maximum rate of interest that a borrower would have to pay
(Veenhof, 1997).
10
Deregulations have been motivated by several agendas and have occurred
through several series of actions (cf. Larsson, 2002). Therefore, I do not extensively
elaborate on deregulation in this thesis.

14
intervention (Jönsson, 2016). According to Jönsson (2014), this political
agenda received more fuel as it was established that the market economy
side had won the struggle with socialist systems, symbolized by the fall of
the Berlin Wall. In Sweden, the deregulations of the 1980s resulted in several
old regulations, such as interest rate controls and credit limits, being
removed from 1983 to 1985 (Honkapohja, 2012; Larsson, 2002). 11
From time to time, governments may also introduce new banking laws.
Since the 1990s, national banking laws in Sweden have featured financial
stability regulations (The Swedish Bankers Association, 2016). These
regulations require that governments supervise banks and protect them
from financial distress and default (Cihak, Demirgüç-Kunt, Peria, &
Mohseni-Cheraghlou, 2013). For banks, these regulations imply more
stringent demands for starting and running operations. These demands are
supported by capital adequacy requirements stipulated by the Basel Accords
(Chey, 2014; Ojo, 2010b). So-called stress tests are a frequent feature of the
ongoing supervision of banks’ capital adequacy and resilience to bank risks
(Acharya, Pedersen, Philippon, & Richardson, 2017). I come back to bank
risks in subsection 2.4.1.
Moreover, during the work on this thesis, regulators around the world
have reinforced old banking laws and introduced countless additional ones
motivated by the GFC (Basel Committee on Banking Supervision, 2010;
Härle et al., 2016; Petitjean, 2013). For example, in the USA, the Dodd-Frank
Wall Street Reform and Consumer Protection Act, signed into law in July
2010, required for the first time that regulatory agencies prohibit precarious
business activities in banks to prevent them from poor decision making (The
Dodd-Frank Act, 2010). Various accounts (e.g., Goodhart, 2011; Wolf, 2014)
confirm that banks globally have spent enormous amounts of money to
comply with these additional banking laws. This also applies to the
regulatory agencies supervising banks (Newlands, 2014).

2.2.2 The Basel Accords

In this subsection, I follow the development of the Basel Accords through
four upgrades, i.e., Basel I–IV. I present an overview of these upgrades,
providing details on the years they were released, their objectives, and some
of their identified limitations.

11
The actual starting dates of country-specific deregulation initiatives vary: for
details of the changes in the USA, see DeYoung, Evanoff, and Molyneux (2009) and
Van Hoose (2010); for details of the changes in the European Union, see Goddard,
Molyneux, Wilson, and Tavakoli (2007).

15
 Since the late 1980s, governments in more than a hundred countries,
among them Sweden, have reached agreements with the Basel Committee
for Banking Supervision, which promotes the Basel Accords (Basel
Committee on Banking Supervision, 2004, 2006; Finansinspektionen, 2010,
2014; Jackson, 1999; Van Hoose, 2007).
In 1988, the Basel Committee for Banking Supervision presented Basel I
(Toniolo & Clement, 2005). 12 The major objective of Basel I was to ensure the
stability of the international banking system after several horrendous events
in the banking industry following the failure of the Bretton Woods
Agreement (Ojo, 2010b). This stability was to be achieved through the
international convergence of regulations targeting large international banks
(Jackson, 1999). Basel I defined minimum capital requirements for banks. 13
According to Kuritzkes and Schuermann (2010), Basel I based the minimum
capital requirements solely on the total extent of credit assets, assuming
them to be associated with varying risk weights. 14 By ensuring minimum
capital requirements and considering differences in the levels of credit risk,
banks were expected to be in a position to absorb the highest foreseeable
exposures and to offset assets, source new funding, and/or withdraw from
business activities exposed to losses (Ojo, 2010a). 15
The benefits of Basel I, however, were not undisputed. It was found that
Basel I could not eliminate opportunities for banks to get involved in
uncertain deals and was not really attuned to reducing threats to the
international banking system (Ambrose et al., 2005). For example,
Wahlström (2006, p. 505) found that top bank managers “were convinced
that they would never find a suitable solution to the problem of accurately
measuring operational risk”. The seriousness of the problems were such that
Wahlström (2006, p. 513) concluded that it would be a mistake to assume
that the quantification of operational risk would establish greater stability in
the international banking system. Moreover, it was found that risk weights
may not properly reflect the magnitude of bank risks.
In 2001, the Basel Committee for Banking Supervision presented an
updated draft of earlier proposals to reform Basel I (Basel Committee on

12
For an extended examination of the Basel Committee’s historical development,
see Toniolo and Clement (2005).
13
As early as the 1950s, US regulators had used a similar formula to calculate
minimum capital levels (Van Hoose, 2007).
14
The way to achieve this is to allocate a risk weight of either 0, 10, 20, 50, or 100
per cent to each investment based on its riskiness.
15
In 1996, there were some amendments to Basel I related to market risk and
trading positions not directly related to bank lending.

16
Banking Supervision, 1999, 2004). Basel II was motivated by banking crises
such as the Asian crisis in the late 1990s (Rajan & Zingales, 1998). Basel II
was also motivated by the fact that banks would benefit from relatively
lower capital requirements for SME loans, suggesting that Basel I
discriminated against SME lending (Altman & Sabato, 2005; Bartels, 2002).
Unlike corporate loans, SME borrowers are less sensitive to systemic risk,
i.e., risk that affects the entire market.
It has been found that defaults in SME loan portfolios are weakly
correlated with each other in comparison with defaults in corporate loan
portfolios. There are several reasons for such a finding. SMEs, for the most
part, are not homogeneous with identical profiles. Besides their smaller
relative size and access to multiple bank relationships, SMEs are found in
various industries and vary in age, location, and performance. This results in
smaller groups of SMEs captured by fewer data with which to run the
statistical analyses required for measuring and quantifying potentials for
defaults in loan portfolios. Consequently, Basel II included instructions to
classify SME loans differently from corporate loans (Altman & Sabato, 2005;
Larsen & Bjerkeland, 2005; Neuberger, Räthke, & Schacht, 2006).
Basel II called for bank capital to be connected to credit ratings by rating
agencies (Ojo, 2010a). 16 These agencies estimate publicly listed firms’ ratings
expressed using a standardized set of measures. These agencies’ estimates
are based on calculations, a forward-looking perspective, and the known
distributions of defaults in credit portfolios (Esposito, 2011). The literature
presents several approaches to estimating such default probabilities.
Initiated by Black and Scholes (1973) and Merton (1974), the structural
approach explains that a default occurs as the firm’s asset value falls below a
threshold level. The probability of default expresses the potential losses
expected from lending to a specific borrower, which should indicate the
borrower’s overall creditworthiness and its capacity to satisfy its financial
obligations to investors and lenders (Shapiro, 2016).
Basel II also called for bank capital to be connected to banks’ internal
ratings (Jacobson, Lindé, & Roszbach, 2006). These ratings are called internal
because banks were allowed latitude to measure and quantify bank risks on
their own (Wahlström, 2009b). According to Beck (1992), implicitly, society
is expected to rely on organizations to deal with threats. From the
perspective of regulators, a bank’s internal ratings should determine how
much capital it should set aside to fulfil capital adequacy requirements (Ojo,

16
There are three internationally renowned credit rating agencies: Moody’s,
Standard and Poor’s, and the Fitch Group (Shapiro, 2016).

17
2010a). Internal ratings could enable bank employees to relate to borrowers
from a distance and in impersonal ways (Chen & Chiou, 1999). Management
could therefore expect avoidance of cases of bank loan officer discrimination
against borrowers based on non-monetary factors such as gender and
ethnicity (Cavalluzzo, Cavalluzzo, & Wolken, 2002). Moreover, borrowers
could expect more efficient access to credit as banks rated their own
customers (Rossi, Schwaiger, & Winkler, 2009).
However, Basel II was not welcomed wholeheartedly from the start.
From an academic perspective, Danielsson et al. (2001) made several
remarks, for example, on the endogeneity of risk, liquidity levels in times of
crisis, 17 reliance on credit rating agencies, pro-cyclicality, 18 and the pitfalls of
quantifying bank risks. Regarding the pitfalls of quantifying bank risks,
Blum (2008, p. 1706) argued that “in the lending business … there is only
very low-frequency data, whose quality is difficult to verify due to the
banks’ opaqueness”. The lack of sufficient data is a major drawback of the
measurement and quantification of risk (McGoun, 1995). In another criticism
of Basel II, Jarrow (2007) noted that the models used for quantifying internal
ratings are very rough approximations, too rough to be considered the basis
of ideal capital adequacy regulations, and instead suggested that the models
needed further improvement.
In 2005, and in the post-Enron era, the Basel Committee on Banking
Supervision issued the International Convergence of Capital Measurements
and Capital Standards: A Revised Framework, and also a revised version of
the Capital Accord to incorporate market risks (Basel Committee on Banking
Supervision, 2006). 19 For more information about market risk, see subsection
2.4.1. In the European countries, Basel II was translated into European law in
the EU Capital Requirements Directive, and it was expected to require three
years of transition from its start in 2007. 20 The literature review by Kaur and

17
When prices fall and risk-averse banks have to dispose of risky assets, liquidity in
the market is lower relative to the case of no regulation, since such banks’ ability to
supply liquidity to other actors with lower risk-aversion has been reduced.
18
This refers to the phenomenon of banks’ holding less capital or overlending at
the top of a cycle, exactly when the danger of systemic crisis is greatest, while
banks will hold too much capital or underlend during the downturn when
macroeconomic stabilization requires an expansion of lending.
19
In 2006, the Basel Committee issued a comprehensive version of the Basel II
Framework, solely as a matter of convenience to readers, which also included
minor revisions (Basel Committee on Banking Supervision, 2006).
20
The approach of the Swedish Financial Supervisory Authority (FI) is set out in
FFFS 2014:1 Finansinspektionen’s Regulations and General Guidelines regarding

18
Kapoor (2015) offers an overview of the adoption of Basel II in numerous
countries and banks.
In this thesis, I concentrate on Basel II and bank lending. According to
Kaur and Kapoor (2015), Basel II has been fully implemented since 2010, so
researchers can now study bank employees’ experiences of it.
In 2010, in a post-GFC environment, the G20 21 and the Basel Committee
on Banking Supervision put considerable energy into bringing in Basel III
(Basel Committee on Banking Supervision, 2010). Part of the background
was the observation that, during the GFC, banks such as Northern Rock and
the Anglo–Irish Bank, which complied with Basel II, nevertheless had to be
protected by their governments (Goodhart, 2011). This was interpreted by
the G20 as a sign of Basel II’s failure. Among the G20’s observations was the
fact that different banks used the Basel Accords in different ways. The
regulators criticized such lack of uniformity in the application of the
standard. The issue of regulatory arbitrage was considered by regulators to
be a cause of the GFC (Basel Committee on Banking Supervision, 2010).
Consequently, Basel III was said to offer banks several improvements. In
particular, Basel III was intended to improve banks’ management of
liquidity risk, given the insights gained from credit market stoppages during
the GFC (Basel Committee on Banking Supervision, 2010). I further describe
liquidity risk in subsection 2.4.1. Basel III was introduced in 2014 and banks
were given an implementation deadline of 2019 (Basel Committee on
Banking Supervision, 2016). After its announcement, there were indications
that Basel III would have a negative impact on bank lending (B. Allen, Chan,
Milne, & Thomas, 2012).
In November 2016, a final report on a potential Basel IV was released by
the European Central Bank (European Commission, 2016). Basel IV is
expected to emphasize the harmonization of standardized models of risk-
based measures and the models that banks use for internal rating as well as
the reconsideration of minimum capital requirements. Moreover, there are
expectations of revised rules changing capital and liquidity requirements, of
amendments to the Bank Recovery and Resolution Directive, and of the

governance, risk management and control at credit institutions

(Finansinspektionen, 2014); see also FFFS 2016:8 Regulations amending
Finansinspektionen’s Regulations and General Guidelines (FFFS 2014:1) regarding
governance, risk management and control at credit institutions for an updated
version.
21
The Group of Twenty (G20) is an international forum for the governments and
central bank governors of 20 major economies.

19
implementation of global standards for total loss-absorbing capital (Jackson,
2016; Magnus, Margerit, & Mesnard, 2016). 22

2.2.3 Banking crises

Banking crises are the prime motivator of banking laws’ orientation towards
financial stability regulations and the Basel Accords’ concern for capital
adequacy requirements. In this subsection, I illustrate how previous banking
crises have been attributed to certain causes and ascribed certain
characteristics. I also present the Swedish banking crisis of the early 1990s
and the GFC of the late 00s, citing examples of events observed during them
and of related government actions to protect banks.

Causes and characteristics

Several banking crises have occurred over the years. 23 In their simplest
forms, banking crises have been explained by stock market crashes, such as
Black Monday (MacKenzie, 2004), or by wrongdoings by individuals, such
as Nick Leeson’s speculative activities in the case of Barings Bank (Stein,
2000).
Because of the tight coupling between banks and the financial and
housing markets, periodic banking crises can be characterized as inevitable
(cf. Perrow, 1984). Banking crises threaten the financial stability of nations
and require action to reduce their potential impacts.

The Swedish banking crisis of the early 1990s

Banking crises typically strike specific countries. One likely cause of the
Swedish banking crisis in the early 1990s was an ongoing crisis in the
Swedish housing and real estate markets. Between 1990 and 1995, Swedish
home prices decreased 25 per cent and commercial real estate paper lost
value substantially. Moreover, by the 1990s, the deregulations of the 1980s
had brought a massive increase in credit volumes, high inflation, low real
wage growth, and massive public deficits (Elliot, 2015; Honkapohja, 2012).
The Swedish banking crisis could have been smaller if the Swedish

22
Details of implementation timeframes were not available from www.bis.org at
the time of writing, due to the ongoing process of reaching agreements between
countries.
23
For other examples of banking crises, see Beck, Demirgüç-Kunt, and Levine
(2006), Diamond and Dybvig (1983), Englund and Vihriälä (2009), Kindleberger,
Laffargue, and Wood (1983), and Rothbard (1962).

20
government had not failed to protect its currency (i.e., the Swedish Crown or
SEK) from speculative trading, causing the central bank to raise the interest
rate to 500 per cent in September 1992 (Englund & Vihriälä, 2009). In
addition, amid a wave of corporate bankruptcies, Swedish banks reported
SEK 57.5 billion in credit losses for 1992, equalling 12 per cent of the national
GDP (The Swedish Bankers Association, 2016).
The Swedish government initiated a rescue programme in an effort to
protect national banks from default and to ensure the continuity of
transactions between financial institutions (Englund & Vihriälä, 2009). This
programme had access to SEK 65 billion in funds and was intended to
recapitalize national banks. Among several other measures, the Swedish
government eventually nationalized Nordbanken, part of the current
Nordea (Englund & Vihriälä, 2009; Engwall, 1995; Honkapohja, 2012). The
Swedish rescue of national banks was exported to other countries as a model
for rescuing banks during the GFC (Eckbo, 2010).

The GFC of the late 00s

National banking crises can also affect other countries. According to F. Allen
and Carletti (2010), the GFC started in 2007 when the market for bank
subprime financing of US-based mortgages collapsed. The background to
these mortgages was the political agenda that most Americans should own
their homes (Swedberg, 2010). In the meantime, the US government had
sanctioned a low interest rate policy incentivizing banks to finance these
home purchases (Rajan, 2006). The resulting so-called over-lending created
massive bad credit on the asset side of bank balance sheets, exposing banks
to credit risk (Hall, 2008). As home prices in the USA started to diminish in
late 2006 and early 2007, banks had to account for major losses from this bad
credit (Bernanke, 2007, 2008).
The consequent asset devaluations had worldwide effects. Records
indicate that, globally, the banking industry lost or wrote off almost USD 1
trillion in assets as a result. Country-specific impacts also occurred. Swedish
banks experienced major credit losses, as illustrated by a report from the
Swedish daily press: “Credit losses in the largest domestic banks are
expected to reach SEK 170 billion in the next three years” (Mauritzon, 2009).
News of the asset devaluation led to bank runs. In September 2007,
Northern Rock bank in the UK suffered such a run (Hall, 2008). In a bank
run, depositors demand immediate access to their money. Typically, banks
hold only a fraction of deposited money, lending out the majority to
borrowers (Calomiris & Haber, 2014). A bank run puts considerable financial

21
pressure on the bank to fulfil its obligations to its depositors (Diamond &
Dybvig, 1983).
As a result of such news and bank runs, series of stoppages occurred in
credit markets (Carney, 2008). During the GFC, such stoppages were
collectively referred to as a “credit crunch”, a situation in which capital
market participants unexpectedly reduce their lending activities (cf. Gabrieli,
2009). According to Jönsson (2014), citing Gorton (2012), the history of
banking crises is a story of lack of money.
In 2008, the central bank of the USA (i.e., the Federal Reserve) offered
additional lending facilities for bank recapitalization (Ratnovski, 2009). Also,
the US government took several actions to protect national banks, for
example, by launching the Troubled Assets Rescue Program (TARP), which
was given a budget of USD 700 billion (Pro Publica, 2017). It must not be
forgotten that TARP was restricted to banks recognized as “too big to fail”,
leaving small banks exposed to bankruptcy (Ratnovski, 2009). 24 For example,
in 2009 the US government placed the banks Fannie Mae and Freddie Mac in
conservatorship, because they were considered large national lenders that
could not be allowed to default (F. Allen & Carletti, 2008). 25 However, TARP
fell short when several US banks were financially distressed concurrently
during the fall of 2008, and it was insufficient to protect every “too big to
fail” bank, such as Lehman Brothers (Swedberg, 2010).

2.3 Changes in the banking industry

In this section, I elaborate on changes in the banking industry partly driven
by contingencies in the environmental context. Since the 1980s, several
changes have occurred in the banking industry as a result of events in this
context. As noted, the deregulations of the 1980s were intended to promote
financial integration, so that bank customers could receive lower transaction
costs and have more efficient access to capital for making investments
(Simpson, 2010). This resulted in lower profitability in traditional bank
businesses, such as saving accounts and lending (Elliot, 2015; Engwall, 1997;
Soin & Scheytt, 2008). The lower profit opportunities in traditional banking
products led to an emphasis on lower production costs and economy-of-

24
An overview of the bankruptcies of US-based banks alone found that of the 498
banks that failed between January 2000 and January 2013, 474 filed for bankruptcy
after the GFC started (The Federal Deposit Insurance Corporation, 2016).
25
In the USA, corporations can be placed under conservatorship, in which the
court-assigned conservator is expected to assume the rights of shareholders and
managers, with the prospect that these rights will be relinquished.

22
scale thinking in banks (DeYoung, 2013). All this encouraged banks to
pursue consolidations and to become large (DeYoung et al., 2009).
With increased size, the diversity and number of activities tend to
increase in organizations, as do additional related administrative burdens
(Chandler, 1962; Williamson, 1975). As noted in subsection 1.2.3, large banks
have a multidivisional organizational structure (Kipping & Westerhuis,
2014). Moreover, the larger the organization, the more rational the design of
tasks and responsibilities must be (Barley & Kunda, 1992). Large banks are
therefore typically centralized and, as mentioned, the Basel Accords
reportedly support centralization (Wahlström, 2009b).
Large banks typically favour easily disseminated information for
decision making (J. C. Stein, 2002; Radner, 1993). Management can thereby
expect effective goal pursuit regarding business decisions by bank
employees, who may be organizationally separated by task design and
responsibilities (cf. Williamson, 1975). To satisfy such requirements for
information efficiency, large banks use information systems that can
facilitate efficient information communication and storage within the
hierarchy of the organization (Rada, 2008). The use of information systems
has been encouraged by the Basel Accords (Flores, Bónson‐Ponte, &
Escobar‐Rodríguez, 2006; Nilsson & Öhman, 2012).
The increased use of information systems has affected bank lending.
Studies have found that banks began to use computer software for bank
lending in the late 1980s (Kumra, Stein, & Assersohn, 2006). Such
information systems can be used for loan origination (Sangster, 1995). For
example, bank employees can use computer software to quantify
information about borrowers and produce various financial and accounting-
based ratios (e.g., current ratios, capital ratios, inventory ratios, sales ratios,
and net profit ratios). Information systems can also be used to support
portfolio monitoring. For example, bank employees can use sophisticated
processing capabilities provided by computers to manage the vast amount
of information about diversification effects in credit portfolios. These
capabilities mean that bank employees will make fewer errors when
processing information about borrowers and aggregating that information
within the hierarchy of bank organizations. As a result, top management can
expect to efficiently receive signals about credit risks in loan portfolios.
Studies have found, however, that information systems may fail in
“turbulent environments” (Hedberg & Jönsson, 1978). A common failure is
that these systems do not reflect the impact of emerging and evolving events
(Hopwood, 2009a; Hubbard, 2009). In bank lending, the information about
borrowers’ repayment behaviour retrieved from portfolio monitoring

23
exercises (e.g., internal ratings) may not be sufficiently up to date for loan
origination purposes (Rebonato, 2010).
As another indication of changes in the banking industry, banks have
been forced to cut their prices and reduce services involving personalized
interactions with customers (DeYoung, 2010). For example, between 1970
and the mid-00s, the number of bank branches in Sweden declined from
4500 to 2000 (The Swedish Bankers Association, 2016). Moreover, after the
deregulations of the 1980s, banks strove to achieve higher sales volumes and
expanded their businesses into new product areas and markets (DeYoung,
2010). Nowadays, banks sell insurance products to their customers and give
advice on savings and pension investments (DeYoung & Roland, 2001;
Wahlberg, Öhman, & Strandberg, 2016). It is also common for banks to offer
international banking services to their customers. Since the 1990s, numerous
new Swedish and foreign banks have established businesses in Sweden,
offering both standard and niche services (Engwall, Marquardt, Pedersen, &
Tschoegl, 2001). Swedish banks have also opened branch offices in
neighbouring countries, and in developing as well as emerging markets
(Hadjikhani, Pajuvirta, & Thilenius, 2012) and, among other things, lent
money to SMEs in these countries (Mauritzon, 2009).
However, the economic conditions for international banking changed
with the GFC, as significantly diminished capital flows forced banks to
withdraw from novel product areas and international markets (Cetorelli &
Goldberg, 2011). Moreover, the period after the GFC has seen an emphasis
on the enforcement of existing banking laws and the introduction of various
additional banking laws, as previously mentioned. This so-called
reregulation has dampened banks’ innovativeness and reduced their room
to expand their lending business (Engzell-Larsson, 2016).

2.4 Bank lending

In this section, I present bank lending-related issues previously treated in
the literature. First, I present the various bank risks that the literature
distinguishes. In reviewing the literature, I observed that it also
distinguishes among tasks involved in the practice of bank lending,
including loan origination and portfolio monitoring. Second, the literature
indicates that, when performing these tasks, banks use information and
demand collateral. In this regard, the literature recognizes that information
can have different qualities and that collateral can be sourced in various
ways. I accordingly present previous research findings regarding the various
ways in which banks can obtain information and collateral. This is followed

24
by two subsections treating bank lending to financial institutions and SMEs,
respectively. In each subsection, I present previous research findings
regarding information types and collateral. Each subsection ends by
indicating the potential impact of a banking crisis on each type of bank
lending.

2.4.1 Various types of bank risks

Bank risks are a direct result of bank businesses. According to an overview
by Kuritzkes and Schuermann (2010), bank risks can be categorized as
financial risk and non-financial risk. The financial risk group includes credit
risk, which is the possibility of losses due to default on a financial contract
for a loan. Because this thesis focuses on bank lending, credit risk will
frequently be referred to.
Other financial risks, such as liquidity risk, market risk, and structural
interest rate risk, will occasionally be referred to. Liquidity risk is the
possibility that a bank’s creditors (e.g., financial institutions) may be
unwilling to extend or renew credit to the bank, causing a lack of money for
running operations. Market risk is the possibility of losses due to
movements in market prices, particularly in interest rates, equities, and
foreign currencies. Structural interest rate risk is the possibility of losses due
to poor asset/liability management.
The non-financial risk group also includes various types of bank risks. A
well-known type of non-financial risk is operational risk, which is the
possibility of direct or indirect losses resulting from inadequate or failed
internal processes, people, and systems or from external events (e.g.,
flooding). Another example of a non-financial risk is business risk, which is
the residual earnings volatility when the other bank risk types are accounted
for. These bank risks will also be referred to here.

2.4.2 Tasks and procedures in bank lending

Bank lending research distinguishes among tasks and procedures in credit
operations. Two well-known tasks are loan origination and portfolio
monitoring (Lee & Sharpe, 2009). Loan origination is the process whereby
bank employees assess and evaluate the creditworthiness of potential
borrowers before granting them loans (Santomero, 1997). Portfolio
monitoring includes several processes to avoid and reduce credit risk
(Buston, 2015; Cebenoyan & Strahan, 2004). For example, bank employees
monitor ongoing events and take into account events that may materialize in
the future, avoiding borrowers whose incentives to fulfil repayment

25
obligations may be negatively impacted by these events (Lee & Sharpe, 2009;
Santomero, 1997). Regarding portfolio monitoring, bank employees can
reduce credit risk in loan portfolios by securitizing all or part of loan
portfolios and by acquiring other banks’ securitized loans on the financial
markets (Buston, 2015; Jobst, 2006).
Research identifies two errors in loan origination. Bank employees may
classify borrowers as non-creditworthy when they actually are creditworthy,
in what is popularly called a type-I error (Stiglitz & Weiss, 1981). When bank
employees classify a borrower as non-creditworthy, credit is not granted.
Bank employees may also classify borrowers as creditworthy who are
eventually found to be non-creditworthy, in what is popularly called a type-
II error. This normally results in credit losses. According to Öhman, Nilsson,
and Tagesson (2015), bank employees tend to concentrate on avoiding type-
II errors over avoiding making type-I errors, i.e., avoiding credit losses
seems more important than improving profit opportunities.
Two loan origination and portfolio monitoring procedures are 1)
gathering and assessing diverse sets of information and 2) requesting
collateral. In bank lending studies, researchers typically categorize
information as hard and soft (Sutcliffe & McNamara, 2001). Hard
information is “constructed in such a way that it is difficult for people to
disagree” with it (Ijiri, 1975). Such information can be obtained from the
bank itself, for example, through observing bank account activities, other
financial service usage, and internal ratings. 26 Hard information can also be
obtained directly from the borrower, for example, by asking for a firm’s
financial reports, and indirectly from third parties, such as credit rating
agencies. Coffee (2006, p. 2) commented that such agencies act somewhat
like auditors, serving as professionals who are “positioned so as to be able to
prevent wrongdoing by withholding the necessary cooperation or consent”.
There are several reasons for the superiority of hard information when
determining bank lending. Ijiri (1975) claimed that it is important for the
bank that the borrower be able to account for how money is earned and how
it is spent. Moreover, because credit rationing and pricing rely on estimates,
such as net present value, the use of hard information provides the bank an

26
As mentioned, the Basel Accords expect banks to use internal ratings, which
express the probability of borrower default using standardized signs and symbols,
for example, 1–16. Because they feature numbers, internal ratings are considered
hard information (Jacobson et al., 2006).

26
efficient way to offer credit at a competitive price (Black & Scholes, 1973). 27
Moreover, like transacting counterparties, the bank and the borrower need
to consider the enforceability of commitments stipulated in contracts and
verifiability by third parties (Vosselman & van der Meer-Kooistra, 2009).
Hard information suits banks that make intensive use of information
systems and banks that allocate the decision authority regarding loan
origination to an upper level, such as centralized banks (J. C. Stein, 2002).
In contrast, soft information is non-quantifiable and relationship based
(Berger & Udell, 2002). It can be obtained privately from the borrower, for
example, by inquiring about managerial competences, leadership strengths
and weaknesses, and ability to handle business adversity (Boot, 2000; Ogura
& Uchida, 2014). Soft information can also be obtained from relationships
with enterprise owners, who may or may not be directly involved in the
day-to-day business of the firm (Bruns & Fletcher, 2008; Schuppe, 1999; F.
Wilson et al., 2007). Moreover, soft information can be obtained through
social relationships and interactions with persons representing suppliers,
customers, the surrounding community, and credit circles. Finally, such
information can be found in national newspapers and/or trade journals
(Galaskiewicz & Wasserman, 1989; Westphal et al., 2001). According to
Ogura and Uchida (2014), soft information is usually collected by loan
officers at bank branches. As previously noted, also top bank managers, by
their involvement in various settings (e.g., company boards), can locate soft
information about borrowers.
Arguments are made for the superiority of soft information when
determining bank lending. As Berger and Udell (1998) argue, reliance on soft
information is important in order to reduce borrower opaqueness. People
representing suppliers, customers, and the surrounding community could
potentially address critical and structural changes relevant to the borrower’s
creditworthiness (Boot, 2000). Uzzi (1999, pp. 481–482) emphasized the
criticality of soft information because “the embeddedness of commercial
transactions in social attachments and networks affects personal dealings”.
Moreover, soft information suits banks in which decision authority
regarding loan origination resides at a lower level of the bank organizational
hierarchy (J. C. Stein, 2002).

27
Competitive pricing has several advantages for the business of bank lending, such
as increased credit volumes, increased lending to relatively opaque and risky
borrowers, increased lending in low-income areas, increased lending over greater
distances, and increased loan maturities (Berger & Frame, 2007).

27
 Collateral comprises assets, which can be obtained in various ways, that
the borrower pledges as security for bank loans. These assets can be business
related, such as liens on accounts receivable (e.g., factoring), inventories, or
fixed assets (e.g., leasing). Collateral can also be personally related to the
owner of the firm seeking credit, for example, private assets (Bester, 1994;
Voordeckers & Steijvers, 2006). The smaller the company, the less strict the
separation between the business and the personal risk associated with the
borrower (Voordeckers & Steijvers, 2006). Bank employees accrue several
benefits from requesting collateral, such as the reduction of information
asymmetry (Bester, 1994) and reduced agency problems associated with
borrower behaviours and incentives regarding repayment (Stiglitz & Weiss,
1981). For the bank, requests for collateral can imply less exposure to credit
losses (J. H. Scott, 1977). As presented below, the reliance on collateral can
vary greatly as far as interbank lending and SME lending are concerned.

2.4.3 Interbank lending

Bank lending to financial institutions (i.e., interbank lending) has been
observed ever since the fourteenth-century foundation of the first family-run
banks in Italy (e.g., the Medici Bank) and the establishment of the Goldsmith
banks in the UK in the seventeenth century (de Roover, 1946; Jönsson, 2016;
Quinn, 1997). According to Lockhart (1921), these early observations indicate
the existence of a secret clearing system among banks only. With increased
international trade, liberalization, and the integration of financial and capital
markets (Moshirian & Bishop, 1997; Simpson, 2010), interbank lending has
emerged as a critical channel for bank funding (Beaupain & Durre, 2008;
Demiralp, Preslopsky, & Whitesell, 2006; Huertas, 2011; King, 2008; Popov &
Ongena, 2011).
Money channelled between banks can be used to cover shortages in
settlements and in netting daily trades between financial institutions and
long-term investments (Kahn & Roberds, 1998; Prati, Bartolini, & Bertola,
2003). Interbank loans can be important to different extents to banks of
different sizes. DeYoung (2010) reported that a typical large bank in the USA
supports about 7.85 per cent of its assets with funding through interbank
loans, while a typical small bank supports almost 50 per cent of its assets
with such short-term funding. This suggests that small banks are much more
dependent on interbank lending than are large banks.
Statistics from various countries (e.g., The American Bankers Association,
2013) indicate that interbank loans can be more or less important for funding
banks in different parts of the world. According to Statistics Sweden (2016),

28
large Swedish banks fund approximately half of their operations through
short-term deposits. 28 Financial institutions account for 40 per cent and non-
financial institutions (e.g., households) for 60 per cent of this funding. The
other half of large Swedish banks’ funding is obtained via various long-term
capital and credit market instruments, such as bonds and derivatives. These
instruments can be issued and purchased in both national and international
capital markets as well as in financial markets (Greenbaum & Thakor, 1987;
Huertas, 2010; Jobst, 2006).
For bank lending tasks such as loan origination, research indicates that
lenders can obtain hard information from financial markets (e.g., stock
prices), credit ratings, accounting-based sources (e.g., financial reports), and
other sources (e.g., market analysts’ reports) (Curry, Fissel, & Hanweck,
2008; Furfine, 2001a; Magnan & Markarian, 2011; Persson & Blåvarg, 2003).
However, research records of the use of soft information in interbank
lending are less obvious in the literature. At the same time, it can be noted
that financial institutions are complex and opaque in their organizational
structure, presenting their creditors and lenders (e.g., other financial
institutions) with the problem of information asymmetry. As a result,
financial institutions are not monitored by the lender alone (Heider &
Hoerova, 2009; King, 2008). The transactions of financial institutions are also
monitored by several other parties, such as indirect counterparties, which
offer peer monitoring (Duff & Einig, 2009; Liedorp, Medema, Koetter,
Koning, & van Lelyveld, 2010; Persson & Blåvarg, 2003), credit rating
agencies (Nakamura & Roszbach, 2010), and central banks (Furfine, 2001b).
Interbank lending is not typically secured by collateral. It can be difficult
to find proportionate assets to pledge because of the short durations of
interbank loans (e.g., overnight) and the colossal amounts of money that
these loans involve (L. Allen, Peristiani, & Saunders, 1989; King, 2008).
Before the GFC, if collateral was required, it was requested in fairly subtle
ways (Bernard & Bisignano, 2000). Since the regulatory enforcement in the
aftermath of the GFC, however, banks have had to be more explicit about
their requirements for collateral from financial institutions (Prorokowski,
2014).
Studies indicate that most transactions between financial institutions for
the purpose of interbank lending are conducted repeatedly on a one-to-one
basis, and that fewer transactions are made through brokers (Cocco, Gomes,
& Martins, 2009). Banking researchers who have analysed transaction data

28
“Short term” refers to funding needs for up to one year and “long term” to
funding needs for more than one year.

29
available from capital markets and central banks hold that banks receive
deposits from financial institutions with which they have reached formal
business partnership agreements. In addition, banks informally invest in
capital and credit market instruments (e.g., bonds) originated by other
financial institutions with which they have prior relationships, in what are
characterized as network relationships (Craig, Fecht, & Tümer-Alkan, 2015).
According to Mayer (1976, p. 248), these network relationships can be
characterized as “stable, long-standing and buttressed”.
Transacting counterparties in any market are highly dependent on the
performance of other organizations (Håkansson, Kraus, & Lind, 2010). As
argued by Ouchi (1980), three control mechanisms are available for such
organizations: market, bureaucracy, and clan. These three ideal types of
control offer different opportunities for minimizing costs in transactions and
can coexist concurrently in any inter-organizational setting (e.g., networks),
replacing one other in times of crisis (Ouchi, 1979). The market achieves
control via competition and price, i.e., the informational requirement. A
bureaucracy exerts control by exercising power and legitimate authority,
while contracts fulfil the informational requirements. In a clan, control is not
achieved by explicit contracts as in a bureaucracy; instead, the normative
requirement in a clan is shared values and beliefs, which involve a “deep
level of common agreement between members on what constitutes proper
behavior, and it requires a high level of commitment on the part of each
individual to those socially prescribed behaviors” (Ouchi, 1979, p. 838).
Ouchi (1980) borrowed the term “clan” from Durkheim (2014) who, in his
studies of religions in pagan societies, found that forces can at times unite
people who share the same thoughts, making them participants in common
actions. Such events excite the participants at the individual level and unify
them at the group level (i.e., collective effectiveness). In a clan, the
assumption is that the clan members have functions necessary to one
another, so that members generally feel group solidarity (Ouchi, 1980). One
way to argue for the applicability of the clan concept and the associated
solidarity to the present context is to refer to research findings on interbank
lending. These banking researchers have found that network relationships in
the capital markets are critical for absorbing liquidity shocks emerging
during credit crunches, to the extent that interbank counterparties try to
maintain transactions even during a banking crisis, for example, due to the
frequent transaction settlement and netting needs between banks (Furfine,
2002).
Shared values and beliefs can facilitate trust between transacting
counterparties at the relational level. Shared values and beliefs can also

30
facilitate trust at the institutional level or with external norm-setting
institutions that operate outside the immediate transaction (Barbalet, 2009;
Ouchi, 1980; Simmel, 1950; van der Meer-Kooistra & Vosselman, 2000).
Banking researchers have found that banking laws impose obligations, such
as decentralized liquidity allocation, on interbank lending so as to safeguard
the financial stability of nations (King, 2008). In return, central banks – a type
of external norm-setting institution – act as lenders of last resort in times of
liquidity shock caused, for example, by credit crunches (Ratnovski, 2009).
The credit crunch that appeared during the GFC had a negative impact
on interbank lending. Figure 3 shows the interbank lending of Swedish
banks after the announcement of the Lehman Brothers’ default in September
2008. The figure illustrates how interbank lending to domestic banks (the
upper line) and foreign banks (the lower line) was negatively affected by this
default, with foreign banks taking a proportionally larger hit. The figure
presents the loan amounts in SEK millions, measured on a monthly basis
from August to December 2008 (Statistics Sweden, 2015).
Banks that are dependent on short-term funding provided by the
interbank market are exposed to various bank risks in times of credit crunch
(Rajan, 2006). For example, a bank in need of short-term funding faces
liquidity risk because locating interbank counterparties for settlements
becomes more difficult. Other bank risks can appear as financial institutions
participating in the interbank market increase the interest rates on interbank
loans (Brighi, 2002; Gabrieli, 2009; Ji & In, 2010; Munkhammar, 2011;
Stinespring & Kench, 2009). For example, the London Interbank Offer Rate
(LIBOR) surged significantly when Lehman Brothers filed for bankruptcy
(Barajas, Chami, Cosimano, & Hakura, 2010; Ji & In, 2010; Lothian, 2009).
Consequently, a bank in need of short-term money had to pay a higher cost
of capital for funding its operations through the interbank market.
Moreover, the failure of a financial institution to return borrowed money
(e.g., due to a default) can cause credit risk, business risk, and operational
risk for other financial institutions. The appearance of these bank risks can
eventually destabilize the financial stability of countries and cause market
risk for banks (Craig et al., 2015; King, 2008). This was the case when
Lehman Brothers filed for bankruptcy (Swedberg, 2010).

31
32
Figure 3: Interbank lending in Sweden from August to December 2008.
2.4.4 SME lending
It is widely acknowledged that SMEs are important enterprises. Statistics
indicate that SMEs represent the dominant form of enterprise, contributing
greatly to GDP and employing millions of people (T. Beck & Demirgüç-Kunt,
2006; McCann & Ortega-Argilés, 2016). It is also acknowledged that SMEs
need money to start up, fund short- and intermediate-term shortfalls in
working capital, and for investments in fixed assets and business expansion
(Deakins, Whittam, & Wyper, 2010; Nofsinger & Wang, 2011). The reliance
on banks is particularly pronounced for start-ups and for firms in their first
year of operation (Robb & Robinson, 2012).
According to Robb and Robinson (2012), firms prefer to use internal
funds rather than external financing to fund working capital and
investments. However, smaller and younger firms are normally financially
more constrained in generating internal funding than are larger and older
ones (Hyytinen & Pajarinen, 2008). Hence, many SMEs rely greatly on
external financing (Berger, Cerqueiro, & Penas, 2015). According to a US-
based survey by the Small Business Administration (2015), external
financing is sourced from banks (51 per cent), finance companies (36 per
cent), mezzanine and buyouts (9 per cent), business angels (2 per cent), and
venture capitalists (2 per cent).
Banking researchers have described SMEs’ opaqueness and its likely
causes. For example, financial records and documentation may not be up to
date or complete due to SMEs’ generally limited operating histories (Altman
& Sabato, 2005; Berger & Udell, 1998; Robb & Robinson, 2012). SMEs’
opaqueness presents banks with an information asymmetry problem,
suggesting that the borrowers may have more and better information than
do the banks (Akerlof, 1970).
The results of bank lending research point in different directions
regarding the information used by banks for SME lending. On one hand,
some banking researchers (e.g., Trönnberg & Hemlin, 2014) have found that
banks rely greatly on hard information when originating SME loans. Some
studies (e.g., Berry & Robertson, 2006) have singled out particular types of
such information, such as cash flow statements. On the other hand, other
banking researchers (e.g., Chollet, Géraudel, & Mothe, 2014; Hill & Scott,
2015) have also argued for the importance of soft information for SME
lending, while still others (e.g., Bartoli, Ferri, Murro, & Rotondi, 2013) have
found that hard and soft information are complementary.
Bank lending research has also found that the use of collateral can be
fairly extensive in SME lending (Berger & Udell, 1990). T. Beck, Behr, and
Güttler (2009) found that 96 per cent of the SME loans examined were

33
secured by collateral. According to Manove, Padilla, and Pagano (2001),
extensive reliance on collateral might negatively affect SMEs’ efficient access
to external funding and weaken banks’ incentives to monitor borrowers’
repayment behaviour through information gathering and assessment,
because of the substitution effect of collateral.
Bank lending research indicates that SME lending is traditionally
associated with small banks. Small banks can operate locally, thereby
reaping advantages from their easy access to soft information. Small banks
can, through their local presence, actively monitor the local business
environment, for example, through frequent on-site visits (Berger & Udell,
1998).
Over time, SME lending has also come to be associated with large banks.
There are reports that some large banks see advantages in participating in
SME loan offerings (Berger & Black, 2011; DeYoung, Glennon, & Nigro,
2008), and have therefore created and introduced new loan products
especially designed for SMEs (Uchida, Udell, & Watanabe, 2008). 29 However,
given that large banks normally have relatively poor local market presence
in rural areas, SMEs have not been their preferred client category, as
reasoned by Berger, Demsetz, and Strahan (1999, p. 166):

It may be scope inefficient for one institution to produce outputs which may
require implementation of quite different policies and procedures. These
diseconomies may be most likely to arise in providing services to
informationally opaque small businesses for whom intimate knowledge of the
small business, its owner and its local market gained over time through a
relationship with the financial institution is important.

It is further observed that SMEs face challenges in accessing bank loans in

concentrated markets. In Sweden, the four large commercial and domestic
banks dominate the loan markets, as reported by the Swedish Bankers
Association (2016). Because few banks control the loan markets, the national
banking industry in Sweden can be characterized as concentrated, as is also
the case in other developed countries, such as Switzerland (Neuberger et al.,
2006), Spain (Delgado, Salas, & Saurina, 2007), and the USA (Berger et al.,
2015). In concentrated markets, the competition between banks is less
obvious than in competitive markets (Barbosa, de Paula Rocha, & Salazar,
2015; Bikker & Haaf, 2002). Consequently, access to credit can be limited
because of relatively high financing barriers for borrowers (T. Beck,

29
The examples are loans collateralized by inventory, non-tangible assets, and
accounts receivable.

34
Demirgüç-Kunt, & Maksimovic, 2004). This may especially work against
SMEs seeking credit (Bongini, Di Battista, & Zavarrone, 2007). However,
other reports indicate that a higher percentage of young firms are financed
in more concentrated markets than in less concentrated markets (Petersen &
Rajan, 1994).
Finally, countries that undergo lending booms have been identified as
creating fewer problems for SMEs in accessing external funds than countries
that undergo banking crises (Kraft & Jankov, 2005). 30 Studies have found
that the GFC affected SME lending as banks withdrew from markets and
reduced their lending. This has been confirmed by later statistics that
indicate a 30–40 per cent drop in SME lending in several European countries
(Jiménez, Ongena, Peydro, & Salas, 2012).
Figure 4 illustrates a diminishing trend in bank lending to companies,
including SMEs, in Sweden shortly after the Lehman Brothers’ default. The
figure presents the loan amounts in SEK millions on a monthly basis from
August 2008 to December 2010 (Statistics Sweden, 2015).
Given that such a period after a banking crisis implies reduced credit
volumes in general, research has specifically found that lack of access to
internal funds and credit to finance working capital may subject SMEs to
liquidity risk and may also cause them to forego investments (Armstrong,
Craig, Jackson, & Thomson, 2014; Riding, Madill, & Haines, 2007; Udell,
2011; Varum & Rocha, 2013). SMEs run additional financial risks as banks
normally increase interest rates on loans in such times (Gambacorta &
Mistrulli, 2014). Statistics confirm that after such periods of reduced credit
volumes, SMEs tend to default at higher rates and that governments and
other institutions tend to introduce incentives to stimulate SME lending,
such as loan guarantee programmes (T. Beck, 2008; T. Beck & Demirgüç-
Kunt, 2006; Bennett, Güntay, & Unal, 2015).

30
Lending booms can be identified through changes in credit/GDP ratios.

35
36
Figure 4: Company lending in Sweden from August 2008 to December 2010.
2.5 Bank employees
In this section, the first subsection is dedicated to previous research findings
regarding strategic-level bank employees and their responsibilities, which
have expanded with the introduction of the Basel Accords. In this subsection,
I also present a framework for analysing top bank managers’ use of power.
The next subsection presents previous research findings regarding bank loan
officers’ tasks and responsibilities, which have been affected by changes in
the banking industry, including the introduction of the Basel Accords. I also
present the theoretical framework used for analysing bank loan officer
cognition.

2.5.1 Bank employees at the strategic level

Strategic-level employees can be found across bank organizational
hierarchies. At the top of hierarchies, bank CEOs are known for submitting
to owners (cf. Pollard, 1965) and for monitoring the business in the owners’
absence (cf. Barnard, 1968). As previously mentioned, because of banks’
organizational structure, top managers mainly concentrate on business
strategies (Sutcliffe & McNamara, 2001), acting as representatives towards
both the external environment and the internal organization (cf. Tengblad,
2002). Inside bank hierarchies, CEOs and other top managers are assigned
responsibilities for planning and coordinating tasks, and for supervising and
monitoring performance (cf. Argyris, 1954; Fayol, 1990; Kipping &
Westerhuis, 2014; Mahoney, Jerdee, & Carroll, 1965; Otley, 1980).
With the Basel Accords, top bank managers’ responsibilities have
expanded. Survey studies have found that top bank managers perceive that,
in practice, they are responsible for setting the tone when implementing
standards (Beasley et al., 2005). These additional responsibilities also include
active decision making. Regarding bank lending, the top managers’
responsibility for active decision making implies that they are in a position
to independently assess borrowers’ creditworthiness at loan origination,
regardless of who gathered the relevant information in the first place.
Moreover, these managers should also in a position to participate in decision
making about the diversification of potential credit risk in loan portfolios,
and to act on signals of credit risk in loan portfolios. In this way, top bank
managers are involved in bank lending tasks, putting such bank employees
in charge of managing bank risks (cf. Rogers, 2002; Tucker, 2008).
Within the scope of top bank managers’ responsibilities, various control
purposes can be identified (cf. Mintzberg, 1980). For example, top managers

37
minimize problems in information flows before decision making (cf. Simon,
1947/1997) and maintain hierarchies due to size and complexity issues (cf.
Chandler, 1962). It is important to achieve these control purposes in the
interests of “efficiency seeking” (cf. Fama & Jensen, 1983), maintaining
established command structures and elite interests (cf. Littler & Salaman,
1984), and maintaining the traditions that are seldom reflected on and/or are
unspoken (Zucker, 1977). A topical control purpose is for management to be
in charge of certain projects (Alvesson & Willmott, 2012), such as
implementing the Basel Accords. This is because of a shift from management
as concerned with disciplining an unruly workforce (cf. Argyris, 1954) to a
function that can adapt pre-programmed forms of behaviour. According to
Power (2004a), risk management is intended to induce risk-averse behaviour
in organizations. For example, in bank lending, risk aversion is connected
with bank employees’ avoidance of non-creditworthy borrowers, which
could potentially reduce credit losses. According to Jönsson (2014), top bank
managers can be said to have been assigned responsibilities with
contradictory control purposes. For example, critical scholars (e.g., Power,
2009) have noted that managers may invest in compliance with standards
for window-dressing purposes only.
Bank employees at the strategic level can also be found across functional
departments. Studies refer to group risk control offices (Giovannoni et al.,
2016; Soin & Scheytt, 2008). M. Hall et al. (2015) have found that chief risk
officers (CROs) take the lead in group risk control offices, preferably located
at bank headquarters. Moreover, CROs are assigned various responsibilities,
including compliance with regulatory requirements, risk modelling,
controlling operations, and advising the board and executive management.
In addition, CROs hire, develop, and supervise specialized management
accountants who are assigned expert roles and are expected to provide
independent information to strategic- and operational-level bank employees
(Giovannoni et al., 2016). These management accountants are better known
as risk experts, and are occupied with the measurement and quantification
of bank risks (Basel Committee on Banking Supervision, 2006; Blomberg,
2016; Mikes, 2011; Power, 2004a; Wahlström, 2006).
With the emergence of group risk control offices, top bank management
is not limited by the surveillance capabilities of bank loan officers and their
time constraints when it comes to monitoring borrower behaviour (Lee &
Sharpe, 2009). Management can also rely on signals from risk experts, for
example, obtained through reports on rating migrations (McNeil, Frey, &
Embrechts, 2015). Through access to such sophisticated information, top
management can achieve coordination between loan origination and

38
portfolio monitoring; this is critical because these tasks are somewhat
related, in that the origination of many bad loans could lead to large credit
losses and a demand for more monitoring. However, research findings point
to conflicts of interest between top bank managers and risk experts (Mikes,
2009, 2011; Wahlström, 2006, 2009b). Conflicts of interest, as an example of
the (un)intended production of risk by the organization itself, may result in
bank employees at different organizational levels not realizing the expected
benefits of employing such specialized management accountants.
As mentioned, the Basel Accords are intended to expand top bank
managers’ responsibilities and, as such, address the idea of power. For
example, through active decision making, top management can obtain
sufficient power to have the entire body of employees making strategic
moves simultaneously. The bank can thereby enter or exit particular lines of
businesses (e.g., auto leasing) in response to changes in the economy. By
making such strategic moves, banks could avoid losses and target revenues
efficiently. According to Foucault (1980), power represents the ability to
influence reality (in this case, risk), while C. Huber and Scheytt (2013) reason
that power can influence risk, but will not deal with risk.
According to Clegg (1989), metaphorically, three circuits of power, i.e.,
episodic, social, and systemic, are required to facilitate the adoption and
institutionalization of any innovation, change, or programme (e.g., the Basel
Accords). Power in its simplest form (i.e., episodic) is the idea that A makes
B do something that B would otherwise not do (cf. Dahl, 1957; Lukes, 1974).
While this one-way conception exists, there is the issue of “resistance” that B
may reject the influence of A (Barbalet, 1985). Clegg (1989), with reference to
Lockwood (1964), suggests that in more complex setups, power has both
dispositional capacity and facilitative capacity. Dispositional capacity
provides conditions for social integration through fixing or re-fixing
relations of meaning and membership. As illustrated below, meaning is
fixed to privileged membership categories that are aligned with the
meanings:

A traffic police officer on a busy street … has the power to stop the traffic,
whether he actually does it or not. The dispositional power of the police
officer is embedded in the shared norms that bind the institutions of traffic
regulations and the police in an urban society. (Silva & Backhouse, 2003, p.
299)

The facilitative capacity provides material conditions of techniques,

production, and discipline, which Clegg (1989) terms system integration.
This capacity is concerned with the empowerment and disempowerment of

39
agencies’ capabilities to ensure the production and achievement of shared
objectives:

In an organization, managers (As) could draw on different techniques to

discipline employees (Bs) whose conduct is regarded as discordant to
organizational objectives. In this situation, A’s actions are legitimized by her
standing conditions and facilitated by the techniques available to her. (Silva &
Backhouse, 2003, p. 302)

C. Huber and Scheytt (2013) argue that the GFC left us with the notion
that risk is more comprehensive than power is. Moreover, the Basel Accords,
as an example of innovation in control and in how information is gathered
and used, ultimately require the transformation of the rules that condition
social and system integration. As Clegg (1989) argues, the extent to which
receptiveness to exogenous change can be expected depends greatly on the
interactions between the exogenous influence of innovations (e.g., the Basel
Accords) and the endogenous unit in question (e.g., practice).
The use of Clegg’s (1989) framework to inform the research findings
presented here resonates with Foucault’s (1980) understanding that we
would expect the coexistence of different forms of power. It can be noted
that studies of power are complex and require particular considerations. For
example, Foucault (1982, p. 220) reasons that studies of power should
consider

that “the other” (the one over whom power is exercised) be thoroughly
recognized and maintained to the very end as a person who acts; and that,
faced with a relation of power, a whole field of responses, reactions, results,
and possible inventions may open up. (Cited in Murray Li, 2007)

To address Foucault’s (1982) observation regarding such considerations,

this thesis recognizes that the attempts of top bank managers to enact their
expanded responsibility imply that such managers have become accountable
to regulators and at the same time powerful over bank employees at the
operational level. As we all know, regulators enjoy the legitimate authority
to enact banking laws through a command-and-control strategy (Gray &
Hamilton, 2006). Banking laws are typically imposed on judicially and
economically independent entities and are intended to regulate their
business activities. For example, the Gramm–Leach–Bliley Act of 1999
limited US banks to a range of business activities, such as securities
underwriting, securities dealing, and insurance (DeYoung, 2010); in this
way, regulators set the agenda for top bank managers (Hambrick &
Abrahamson, 1995). At the same time, by having bank loan officers conduct

40
their assessments according to predetermined standards, power is removed
from these operational-level employees and transferred to top bank
managers, who have implemented the standards. Top bank managers
thereby become even more powerful employees.

2.5.2 Bank employees at the operational level

Bank loan officers are known for being in charge of gathering and assessing
information about borrowers and of setting requirements for collateral at
branch offices. However, structural changes in the banking industry,
accompanied by centralization and the use of information systems, have
come to affect bank loan officers’ tasks and responsibilities. Studies have
found that bank loan officers in centralized banks could find themselves
involved in less personal communication with borrowers (Cavalluzzo et al.,
2002; Moro & Fink, 2013). For example, it has been found that intuition is
downplayed: intuition or “gut feelings” are, to an extent, based on personal
relationships and can partially compensate for lack of information
(Jankowicz & Hisrich, 1987).
The use of information systems that emphasize hard information has
resulted in less emphasis on bank loan officers’ capabilities and has reduced
their discretion (Nilsson & Öhman, 2012). Comparative studies have
examined different groups of loan officers, focusing on junior bank loan
officers’ and senior bank employees’ information processing (Andersson,
2004; Rodgers, 1999). Studies have also included additional factors, such as
bank loan officers’ education, experience, and tenure (Bruns, Holland,
Shepherd, & Wiklund, 2008). However, these studies have not been
successful in identifying the significance of bank loan officers’ capabilities
for bank lending decisions.
Other studies have examined whether bank employees’ bank lending
performance is determined by their gender. 31 The focus on gender is relevant
as Billing and Alvesson (1989) suggest that the modernization of society and
transformation of the labour market to include more women in wage labour
have stimulated general interest in women in working life and employment.

31
It should be mentioned that gender is a different phenomenon from sex,
especially in the context of work and employment (Ashe & Treanor, 2011; Ely,
1995; Mirchandani, 1999; Rubin, 1975). Moreover, gender can be viewed from
various perspectives. This thesis views bank loan officers’ gender as a situated
rather than a static phenomenon (Gatens, 2003). This perspective is relevant, as
this thesis views bank risk management practices as contextual.

41
These developments have been observed in various industrial settings; for
example, the audit industry has seen the introduction of women auditors
into the profession (Wallerstedt & Öhman, 2012).
Management control systems (MCSs) such as risk management provide
planning, governance, coordination, and control on the basis of command
and control (Bhimani, 2009; Billing & Alvesson, 1989). However, as noted by
Hermansson (2012), risk management affects women and men differently.
Literature reviews (e.g., Byrnes, Miller, & Schafer, 1999; Zeffane, 2015) often
come across findings that females are more risk averse than males. However,
the literature review by Bellucci, Borisov, and Zazzaro (2011) found that the
issue of gendered risk aversion regarding bank lending is not settled, and
that more studies are required. Female bank loan officers are found to follow
the rules more strictly than do their male counterparts (Carter, Shaw, Lam,
& Wilson, 2007). At the same time, studies such as that of F. Wilson et al.
(2007) have found that female bank loan officers may be better positioned to
understand certain segments of borrowers. Not least, female loan officers
can better imagine female entrepreneurs’ situations, which may be
important when assessing such borrowers’ creditworthiness. Studies have
also found that female and male risk aversion manifests itself differently in
evolving and emerging situations (Agarwal & Wang, 2009).
Given the changes within the banking industry, bank employees are
required to translate loan origination and portfolio monitoring processes
into measurement and quantification terms. Via such translations, the Basel
Accords facilitate the use of risk-based measures (e.g., internal ratings). As
mentioned in subsection 2.2.2, internal ratings determine a bank’s capital
adequacy targets and restrict bank employees’ decision making regarding
bank loans. It could thus be argued that the Basel Accords, through
measurement and quantification, have affected bank loan officers’ cognition
(cf. Rose, 1999), meaning the psychological processes through which they
make sense of the world.
A relevant theoretical framework for studying cognition is personal
construct theory. 32 The fundamental postulate of Kelly’s (1955) personal
construct theory is that a person’s processes are psychologically channelled
by the ways in which he or she anticipates events. Kelly postulates that this
is possible because everyone is an active construer of the world, like a
scientist. Via efforts to construe the world, the person’s search for reality

32
The clinical psychologist G. A. Kelly (1955) presented this theory in his two-
volume The Psychology of Personal Constructs, to serve as guidelines for
practitioners.

42
progressively approximates the universe based on anticipations of it and on
the realization of consequences. This construing is necessary in order to
make sense of the objects in the universe and of our interactions with them.
This theory represents an effort to psychologically understand the
structural features of the system of personal constructs (Kelly, 1955). 33 A
personal construct system includes elements and constructs. An element is a
unit of reflection and meaning, such as an event, experience, object, or
person (Kelly, 1955). A construct represents the evaluative judgment one
makes of an event’s particular features and attributes, for example,
pleasantness. If it is relevant to the person, the articulation of evaluative
judgments provides an understanding of the person’s cognitive map
(Fransella, Bell, & Bannister, 2004). A person uses constructs as rules to
decide what should be done (Mischel, 1964) and to enable the person to
embark on a course of behaviour. These rules can be cultural, familial, and
scientific and represent competing alternatives for construing reality.
Accordingly, people exploit alternative rules because interpretations are
subject to revision or replacement (Kelly, 1955).
Kelly (1955) presents corollaries that he argues are basic to an
understanding of constructs. The construction corollary suggests that a
person anticipates events by construing their replications. 34 The drive for
replication, Kelly (1955, pp. 49–50) argues, arises from people’s need to cope
with upcoming events in the world.
According to the individuality corollary, peoples’ constructions of events
are individual. For example, different bank employees may view the Basel
Accords differently based on their individual constructions of the
consequences of this standard for task performance.
According to the communality corollary, peoples’ constructions of events
also tend to rely on the constructions employed by others. This means that
construing can also be collective and based on shared meanings of events
(Adams-Webber, 1998). For example, the introduction of the Basel Accords
in a bank may feature shared meanings embedded in a unique context
comprising regulators, the banking industry, and the specific bank

33
According to Warren (2002), Kelly referred in two ways to personal construct
theory as a theory: first, as a body of related problems or questions; second, in the
more formal sense as a logically interconnected set of confirmed hypotheses. The
latter implies that personal construct theory is propositional in nature and provides
testable propositions and hypotheses (Walker & Winter, 2007).
34
By construing, Kelly (1955, p. 50) means “placing an interpretation”. In
construing a replication, the person notes features of a series of elements that
characterize some of the elements but are particularly uncharacteristic of others.

43
organization. The shared meanings attributed to the Basel Accords can be
understood in the way bank loan officers use similar constructions of their
experiences.
The dichotomy corollary suggests that constructs are bipolar in nature.
This implies that when a person experiences an event (i.e., element) for the
first time, he or she might evaluate the experience of that event by using
contrasting constructs (e.g., pleasant–unpleasant). A person can have several
constructs, and the number of constructs in his or her personal construct
system reflects the degree of complexity. A complex construing is
considered superior in a complex situation (Crockett, 1982).
According to the range corollary, each of a person’s constructs is
applicable within a certain range and scope of experiences as perceived by
the user, i.e., within a “range of convenience”. This implies that every
construct is limited in a sense.
The experience corollary suggests that when a person faces an event, he
or she starts by anticipating its outcome, then experiences the event, acts,
and evaluates the outcome of the event. Finally, he or she re-evaluates the
predictions made, and makes revisions for sense-making purposes. In cases
of mis-prediction, the person’s construing of the reality develops and
changes.

44
3 Methodological considerations
3.1 Overview of research method
To provide the reader a logical sense of how this thesis progressed, the first
row of Table 2 presents the headings “Research philosophy”,
“Methodological choices”, “Research strategy”, “Data collection and
analysis”, and “Research quality”, an analysis suggested by Saunders, Lewis,
and Thornhill (2011). The second row in Table 2 gives an overview of the
related research activities conducted and choices made. For example, the
“Data collection and analysis” column details the activities and choices in
the strategic-level studies, including semi-structured interviews, use of
archival data, and interpretation. The activities conducted and choices made
were based on my assumptions as to what constitutes pertinent research,
and on the assumptions of the immediate research community as to what
constitutes valid research. Table 2 also presents the subsections in this
chapter, in which activities are described in detail and choices are justified.

45
 Table 2: Overview of the research process

Research Methodological Research strategy Data collection Research quality

philosophy choices and analysis

Critical realism Mixed methods Strategic-level studies Strategic-level studies Strategic-level studies
Interviews with top Semi-structured interviews Research partnerships
Focus on employees at managers and high-ranking Archival data Communicative validity
different organizational officers at three large banks Interpretation Pragmatic validity
levels of large banks and several key banking Triangulation of data
industry institutions in Operational-level studies Field engagement

46
Sweden
Operational-level studies
A repertory grid study
including bank loan officers
at one large Swedish bank
Pre-studies
Pilot study Operational-level studies
Main study Research partnerships
Retests Communicative validity
Focus group interview Triangulation of data
Open-ended questions Interviewee checking
Background questions
Principal component analysis
Seemingly unrelated
regressions
Interpretation
3.2 Research philosophy
Given the insights gained from the GFC and bank failures, Jönsson (2014)
has suggested that researchers could benefit from considering their
philosophical positioning. In the following, I briefly describe the basic
principles of my research philosophy, positioning and justify its applicability
to this thesis.
I subscribe to critical realism (Bhaskar, 2013), a philosophy primarily
concerned with ontology, i.e., the assumptions one makes in order to
understand the nature of reality or objects (Easterby-Smith, Thorpe, &
Jackson, 2012). According to Fleetwood (2005), an object can exist without
anyone observing, identifying, and constructing it. Moreover, actors can be
knowledgeable about an object even though their knowledge is tacit, partly
because it is impossible to know everything about an object. Moreover, the
researcher’s identification of the object is shaped by theories and research
interests. Sayer (2000) cited examples of objects, including economic
activities, identities, institutions, kingship, wars, and discourses. Related to
discourses, the critical realist position assumes that understandings of an
object are mediated by the available discourses and by feedback from
accessible aspects of the object. Risk management can be recognized as
discourse, as argued by Reed (2000, p. 529):

Discourses – such as the quantitatively based discourses of financial audit,

quality control and risk management – are now seen as the generative
mechanisms through which new regulatory regimes “carried” out by rising
expert groups – such as accountants, engineers and scientists – become
established and legitimated in modern societies.

Because the goal of a critical realist is to develop understanding, 35 access

to the object entails bringing together components and forces (Sayer, 1992,
2000). According to Bhaskar (2013), such components and forces can consist
of the researcher’s interpretations, people’s experiences (which here refer to
bank employees’ perceptions and intentions), and the prevalent conditions
for research. The prerequisite for combining components and forces that
Sayer (2000, p. 19) suggests is that social systems are always open, usually
complex, and messy.
The applicability of the critical realist position can be viewed in terms of
its opportunities and limitations. In terms of opportunities, critical realism is
a growing intellectual movement that has penetrated sub-disciplines in the

35
According to Tschudi (2008), understanding roughly corresponds to getting to
the bottom or intentional level.

47
social sciences such as management (or business administration), economics,
and sociology (Modell, 2009; Sayer, 1992, 2000). In terms of limitations,
McEvoy and Richards (2006, p. 69) stated:

For critical realists, the ultimate goal of research is not to identify

generalizable laws (positivism) or to identify the lived experience or beliefs of
social actors (interpretivism).

To elaborate on how the potential limitations impact this thesis, it is

worth mentioning that the current debate on the nature of risk has yet to be
settled, as noted by Kunreuther and Slovic (1996). Should risk be considered
an objective (quantitative) or subjective (qualitative) phenomenon (Hansson,
2010)? The objectivist camp assumes that people deal with risk based on the
rational selection of alternatives (i.e., with the most favourable rates of
return and the lowest costs), risk reduction being a direct effect of the
selections made (Edwards & Slovic, 1965; S. Kaplan & Garrick, 1981). In
contrast, the subjectivist camp assumes that the ways people deal with risk
involve complexities related to cognitive processes (e.g., heuristics) 36
(Kahneman & Tversky, 1979) and embeddedness 37 (Granovetter, 1985; Uzzi,
1999).
As indicated in section 2.1, advances in philosophical ideas (Bernstein,
1996), risk measurement (Renn, 1998), and internal control (Power, 2004b)
favour the objectivist camp, which has, moreover, colonized finance (Jorion,
2009). According to MacKenzie (2009), measurement and quantification
were at the heart of US monetary policy incentivizing banks to lend money
to the household sector to finance mortgages, causing the GFC. The
objectivist camp has also colonized the ways managers ought to deal with
risk. According to Chua (1996), the general image of the manager is a figure
who seeks efficiency based on precise measurement and who acts
opportunistically, for example, to maximize executive compensation and
shareholder value.
It is not my goal in this thesis to settle the debate on the ontology of risk.
However, I do need to take account of these incongruent perspectives on
risk, and to consider how a large-scale banking crisis such as the GFC
potentially came to challenge the objectivist camp to some extent (Hubbard,

36
People use heuristics (i.e., rules of thumb or automatic thinking) to make
decisions quickly and efficiently, signifying that people are not rational decision
makers (Tversky & Kahneman, 2000).
37
Dealing with risk in bank lending involves considerations of embeddedness in
social settings (Granovetter, 1985).

48
2009; Jönsson, 2014; Rebonato, 2010). To this end, the critical realist position
permits one to take a middle course between these opposing perspectives on
risk, which should be useful when studying how bank employees deal with
risk at different organizational levels.

3.3 Methodological choices

3.3.1 Mixed methods
Recommendations for conducting research after the GFC included
embracing field studies (R. S. Kaplan, 2011) and qualitative research
methods (Modell & Humphrey, 2008) as well as seeking alternative plots
(Czarniawska, 2011). With such recommendations in mind, a mixed-
methods approach was chosen here.
The choice of a mixed-methods approach is aligned with my
philosophical positioning, because the critical realist position assumes that
multiple components interact to form understandings of the object (Bhaskar,
2003). Moreover, Tsoukas (1989) noted that the job of a critical realist
researcher is to repeat speculations and enquiries in order to merge the real,
actual, and empirical domains. 38
Modell (2009) suggested that mixed methods have a long history in
accounting and management control research. Because of their popularity,
mixed-methods approaches are the subject of the Handbook of Mixed Methods
in Social and Behavioural Research (Tashakkori & Teddlie, 2003) and the Journal
of Mixed Methods Research. Moreover, mixed methods offer the possibility of
activating a wide range of theories and combining qualitative and
quantitative research methods in producing valid knowledge claims. This
could provide opportunities for triangulation, i.e., the researcher combining
multiple points of view to examine the same object (Denzin, 1978; H. W.
Smith, 1975).
In the two following subsections, I present the mixed-method techniques
used for data collection and data analysis: semi-structured interviews, focus
group interviews, and finally the repertory grid technique (RGT). After that I
describe the selection of banks.

38
According to Tsoukas (1989, p. 553), the real domain is the domain in which
generative mechanisms, existing independently of but capable of producing
patterns of events, reside. The actual domain is the domain in which observed
events or observed patterns of events occur. The empirical domain is the domain of
experienced events.

49
3.3.2 Interviews
In conducting interviews, I selected the semi-structured and focus group
interview techniques. According to Kvale (2008), an interview can be viewed
as an exchange of views between two or more persons conversing about a
theme of common interest. Moreover, interviews can be used to
systematically obtain knowledge for the purpose of scientific work.
What especially motivated my choice of interviews was that they let the
researcher access the object at both the factual and meaning levels (Kvale,
2008). Moreover, Czarniawska (2008) noted that interviews always provide
material for studying the dominant discourse, as well as deviations from it.
As noted, risk management can be considered a discourse heavily
influenced by the objectivist camp, and practical challenges associated with
the Basel Accords and similar standards motivate deviations from them.
While reviewing the available research methods, I recognized that
interviews are common in risk management studies (e.g., Vinnari &
Skærbæk, 2014; Woods, 2009) as well as bank risk management studies (e.g.,
Blomberg, 2016; Giovannoni et al., 2016; M. Hall et al., 2015; Mikes, 2009,
2011; Wahlström, 2006, 2009a, 2009b).
Interviews produce data that can be analysed qualitatively (Alvesson &
Sköldberg, 2009). Such analysis “aims to provide an understanding of the
way control structures and practices are implicated” (van der Meer-Kooistra
& Vosselman, 2006, p. 235). This understanding can also capture the
“unfolding of events at the level of a specific organization or organizational
relationship” (van der Meer-Kooistra & Vosselman, 2006, p. 235).
By design, qualitative research methods are associated with validity and
reliability issues (Creswell, 2003); in section 3.6, I return to actions taken to
address these issues. 39
Semi-structured interviews involve prepared questioning guided by
themes, conducted in a consistent and systematic manner, and interposed
with probes designed to elicit more elaborate responses (Qu & Dumay,
2011). In particular, the semi-structured interview technique offers flexibility
and is capable of disclosing important and often hidden facets of human
behaviour (e.g., perceptions).
A focus group interview includes groups of people interviewed together
(Qu & Dumay, 2011). The objective of a focus group interview is to create a

39
Here, it can be noted that validity and reliability are not especially relevant
parameters of research quality in qualitative research (Parker, 2012). However, for
simplicity, I use the same concepts when referring to the research quality of the
strategic- and operational-level studies.

50
forum in which people can discuss a topic of interest based on their
perceptions. One advantage is that it allows the researcher to observe and
record the voices of actors in their everyday lives, which could provide a
broader understanding of reality and the object under investigation
(Williams & Katz, 2001). A focus group interview can also be used to
supplement and complement other methods.

3.3.3 The repertory grid technique

The RGT is based on Kelly’s (1955) personal construct theory. Various
researchers (e.g., Walker & Winter, 2007; Wright, 2008) have pointed out
several advantages of the RGT. First, RGT research can target large numbers
of interviewees, which is useful for generalization purposes. 40
Recent reviews (e.g., Bell, 2016; Saúl et al., 2012) provide overviews of the
extent to which the RGT is applicable in studies of various empirical
settings. However, the application of the RGT in bank lending studies using
large numbers of interviewees is rarely observed (e.g., F. Wilson et al., 2007).
Although few bank lending studies use the RGT, some studies have used
large numbers of interviewees, such as the study by Öhman, Häckner,
Jansson, and Tschudi (2006) targeting auditors and the study by Bellman
and Öhman (2016) targeting property appraisers. These studies demonstrate
that using the RGT and including large numbers of interviewees can yield
interesting results about the cognitive structures of professionals.
Second, the RGT offers opportunities to collect varied data of contrasting
natures. A basic approach to data collection in the RGT realm is the grid
form, which consists of elements and constructs (Fransella et al., 2004).
Kelly’s (1955, p. 46) fundamental postulate is that “a person’s processes are
psychologically channelized by the ways in which he anticipates events”.
Bell (2003, p. 95) clarified that “the ways are the constructs, and the events
are the elements”. To complete a grid form, interviewees can be asked to use
Likert-type scales (i.e., providing quantitative data).
Three, to analyse RGT-produced data, various quantitative research
techniques can be used, such as principal component analysis and seemingly
unrelated regressions (Fransella et al., 2004; Zellner, 1962). Such analyses are
intended to measure how interviewees construe elements (Bell, 2003). The
RGT also permits quantitative data to be revised and replaced using

40
Here, it can be noted that respondents and interviewees are terms that originate
in quantitative and qualitative research methods, respectively (Silverman, 2006).
For simplicity, I consequently use the term interviewees when referring to the
people included in the studies.

51
qualitative research techniques (Wright, 2004). According to Kelly (1955), it
is necessary to remain open to alternative construing by individuals and to
the influence of groups on individuals. 41

3.3.4 Selection of banks

As mentioned in the Introduction, this thesis targets large banks. I studied
the four largest Swedish banks (here called Banks A, B, C, and D). Three of
these banks (A, B, and D) offered research access for the strategic-level
studies, while Bank C offered research access for the operational-level
studies. The related papers present specific reasons for selecting each bank.
Large banks have characteristically adopted the Basel Accords. As
reported by Wahlström (2009b), the large banks in Sweden were explicit
about their plans to implement Basel II when it was introduced in 2007. At
the start of this thesis, it was reported that the large Swedish banks were in
compliance with Basel II (Östlund, 2011).

3.4 Research strategy

In this section I justify the strategic choices underlying the five constituent
papers of this thesis by first reviewing the strategic-level studies and then
the operational-level studies.

3.4.1 Strategic-level studies

Papers 1–3 are strategic-level studies targeting mainly top management and
high-ranking officers at Banks A, B, and D. In conducting these studies, one
possible methodological choice was to use the RGT. Although it offers
attractive possibilities (see subsection 3.4.2), I did not choose the RGT for
several reasons. I perceived that certain access issues would affect the
strategic-level studies. In particular, I envisaged that the RGT would not be
considered a practical research instrument because of its time-consuming
character. Moreover, the interviewees at Banks A, B, and D and the several
key banking industry institutions constituted a heterogeneous group in
terms of their responsibilities. According to Winter (1992), some degree of
homogeneity is important when using the RGT and aggregating the analysis
at the group level. It was expected that bank employees’ perceptions at the
strategic level could diverge both within groups of employees and between

41
For detailed discussion of the analytical possibilities afforded by the RGT, see also
Bell (1997), Easterby-Smith, Thorpe, and Holman (1996), and Walker and Winter
(2007).

52
the investigated organizations (cf. Mikes, 2011). Consequently, in the context
of the GFC, qualitative research methods (i.e., interviews) were preferred, as
persuasively formulated by Modell and Humphrey (2008, p. 88).

For all the supposedly technical complexity of modern-day risk management

practices in the financial services sector and the rise of financial econometrics,
today’s credit-crunch and string of banking collapses is one very timely
practical reminder of the potential gains to be had from studying a highly
quantitative arena from a qualitative perspective.

By choosing to interview top bank managers and high-ranking officers, I

expected to gain insights into “what they and their compatriots are up to”
(Geertz, 1973, p. 9). I also expected that this knowledge would consist of
accounts and statements that would reveal bank employees’ perceptions and
intentions.
Moreover, I assumed that adoption of the Basel Accords was driven by
certain institutions in the banking industry that promote the use of this
standard and participate in its implementation processes, such as consulting
firms (cf. Subramaniam, Collier, Phang, & Burke, 2011) and supervisory
authorities (Östlund, 2011). The three papers therefore also targeted high-
ranking officers at key banking industry institutions, such as: Sweden’s
Financial Supervisory Authority, central bank, and treasury department;
three internationally recognized consulting firms; the Swedish Banking
Association; and an international credit rating agency. For more information
about why these intuitions were chosen, I refer to the appended papers.
It should be noted that certain challenges typically hinder researchers
from accessing interviewees at the strategic level in banks and key banking
industry institutions, challenges such as “studying up”, i.e., that the
researcher has less power than the researched person (Czarniawska, 2014).
According to Bowman (2009), the practical side of such a challenge forces
the researcher to address interrelated issues of access, methodology, and
attitudes. 42 These challenges were addressed by using written confidentiality
agreements and forging research collaborations. I collaborated with a senior
research colleague who had previously studied bank risk management
(Wahlström, 2006, 2009a, 2009b) and was employed at the Gothenburg
Research Institute (GRI). His participation legitimated my presence to these
research subjects in positions of power. In subsections 3.5.1 and 3.6.2, I detail
the extent to which I used research collaboration and its expected
advantages for research quality in the strategic-level studies.

42
For more on the challenges of “studying up”, see Bowman (2009).

53
3.4.2 Operational-level studies
The operational-level studies targeted bank loan officers and used the RGT.
The opportunities offered by the RGT (e.g., aggregating interviewee
construing at the group level) require the collection of a certain volume of
data to ensure the outcome of the analysis. 43 As a result, the objective was to
involve 50–100 bank loan officers in the research, and to this end, 75 bank
loan officers were recruited from Bank C. Although interviews have been
used in studies of bank lending and bank loan officers’ assessment of SME
applications, previous interview research has rarely sampled a large enough
number of bank loan officers for an RGT study (e.g., Bruns et al., 2008; Bruns
& Fletcher, 2008; Deakins et al., 2010; Fletcher, 1995; Trönnberg & Hemlin,
2014).
One caveat with the RGT is that its research outputs may be of little value
to practice. For example, the mean value of the interviewees’ aggregated
scoring eliminates unique data about individual construing. To overcome
such caveats, the RGT offers several opportunities for triangulation; for
example, it is possible to conduct focus group interviews (Denzin & Lincoln,
2003). In subsection 3.5.2, I report on a focus group interview session, and in
subsection 3.6.3, I point to other instances of triangulation used for research
quality purposes. Another caveat is that the RGT entails design challenges,
such as selecting relevant elements and constructs, and data-collection
challenges, such as securing access and completing interviews with large
numbers of interviewees.
One way to deal with these challenges is to work as part of a research
team. For paper 4, I was part of a research team of five colleagues from the
Centre for Research on Economic Relations (CER). Some of them had
conducted RGT studies in other empirical settings (e.g., Öhman et al., 2006),
and they initially designed the grid form, i.e., the research instrument. After
the initial research steps, two of them joined me in the main data-collection
step, to ease the time-consuming burden of interviewing 75 bank loan
officers. In the following step, the retest, I was in charge of going into the
field to conduct the interviews. Two of my research colleagues were active
in interpreting the outputs of this analysis and helped me with the technical
parts of the analysis of individual interviewee data. In the final step of the
data-collection process, I collaborated with three colleagues in the research

43
By aggregating bank employees’ construing at the group level, the idea was to
gain a holistic view of how they deal with risk.

54
team to run the focus group interview. I present the stepwise activities
mentioned above more comprehensively in subsection 3.5.1.
For paper 5, I collaborated with one research colleague from the research
team set up for paper 4. Moreover, an additional research colleague from
CER experienced in the statistical analysis technique used in that paper was
involved in the data analysis.

3.5 Data collection and analysis

3.5.1 Data collection and analysis for the strategic-level studies
This subsection describes the techniques employed for data collection and
analysis, addressing RQ1 in papers 1–3. Table 3 summarizes the techniques
used for collecting primary and additional data and for data analysis.

55
 Table 3: Overview of techniques employed to address RQ1

RQ1: How do top bank managers deal with risk at the strategic level in a banking crisis?

Paper Data collection Data analysis

1 Semi-structured interviews with top management and high-ranking officers at Banks A Interpreting accounts and
and B in 2010 about how they dealt with risk in terms of interactions between statements about the
regulations (regarding the Basel Accords) and practice. intended interaction between
the Basel Accords and control
Interviews with high-ranking officers at the Financial Supervisory Authority in 2010 systems for loan origination
about the Basel Accords. and portfolio monitoring, using
the levers-of-control
Annual reports of the two banks, dating from 1990–2010. framework.

2 Semi-structured interviews with top management and high-ranking officers at Bank A in Interpreting accounts and
2010 regarding the practical challenges of the Basel Accords. statements about the practical
challenges of the Basel

56
Interviews with high-ranking officers at the Financial Supervisory Authority in 2010 Accords using a typology of
about the Basel Accords. uncertainties.

Follow-up interviews in 2014 at Bank A. In addition, follow-up interviews with Banks B

and D, two consulting firms, the Financial Supervisory Authority, and the central bank
for triangulation purposes.

3 Semi-structured interviews with top management and high-ranking banking officers at Interpretation of accounts and
Banks A and B in 2010 about dealing with risk in the aftermath of the Lehman Brothers’ statements about of crisis-
default. contingent actions and
decision making filtered
Interviews with high-ranking officers at an international rating agency in 2010, and at through theories of trust.
the treasury department in 2011, about their roles during the GFC.

Statistics from the central bank and reports from government authorities in 2010.
Data collection
The data collection involved several activities, such as preparing and
conducting the interviews and making post-interview efforts. To prepare the
interviews, a list of interview questions was drafted several times and
presented at internal research seminars at CER and GRI to solicit feedback
from experienced researchers. Also, a list of interviewees was compiled. In
compiling this list, I considered the fact that bank risk management involves
several business functions, including management, finance, group risk
control, and operations (cf. R. S. Kaplan, 2011).
When booking the interviews, my research colleague from GRI was in
charge of the contacts with Bank A and booking the initial interviews at this
bank. I booked the interviews at Bank B, the last interviews at Bank A, and
the interviews at the key banking industry institutions. During the initial
interviews, we also identified a need to speak with risk experts specializing
in particular bank risks, and these risk experts were recruited via referrals
obtained during the interviews. After booking the interviews, each
interviewee was emailed a formal invitation letter including a description of
the research project.
Several considerations were pertinent to conducting the interviews. First,
each interview was initiated by asking the interviewee to describe his or her
personal background and function in the organization. Second, after briefly
introducing the research topic, thematized interview questions were posed
to the interviewees (see Appendices A–C for the thematized interview
questions used in each of the three papers). Third, follow-up questions were
occasionally asked to gain a better understanding and to elicit more detailed
descriptions. Some of these questions were closed-ended and intended to
obtain details sometimes expressed quantitatively (e.g., specify the
headcount in certain operations). Fourth, each interview ended with a
question about whether the interviewee would like to add anything. Fifth,
we stopped conducting additional interviews after observing “repetitions”
(Czarniawska, 2014) in the interviewees’ responses – a state also called
“saturation” (Glaser & Strauss, 1967). Sixth, 43 of the 44 interviews were
digitally recorded. In one case, the interviewee declined to have the
interview recorded, though notes were taken. Appendix D lists the
interviews.
The post-interview efforts included allocating time to derive the essential
themes of each interview from the researcher’s immediate memory of the
session, and to document the emerging impressions. These field notes were
useful for me and my research colleague from GRI when adding, revising,
and deleting some of the initial interview questions (cf. Ahrens, 2004). These

57
field notes also helped us recall themes of interest for the later data analysis.
The post-interview efforts also included transcribing the interviews jointly
with the research colleague. It can be noted that although I and my colleague
had collaborated through several data-collection steps, we then decided to
work with the collected data in our own research projects.
Table 3 also shows that additional data were collected for each of the
three papers. For paper 1, annual reports dating from 1990–2010 for Banks A
and B were accessed through the banks’ websites, downloaded, and later
reviewed. Moreover, I conducted eight follow-up interviews in 2014 to test
the emerging results from the findings of paper 2. These interviews are listed
in Appendix D. The follow-up interviews were prepared by sending the
interviewees thematized interview questions before the meetings and
exploiting the semi-structured technique. Appendix B presents the follow-
up interview questions. These interviews were conducted primarily to
follow up the data on Bank A. In addition, I visited Banks B and D, two
internationally recognized consulting firms, the Financial Supervisory
Authority, and the central bank. The rationale for these additional
interviews was appropriately described by Tomkins and Groves (1983, p.
363):

As the research intensifies one examines an analytical element of the study

from different perspectives checking out, for example, how different people
view events which occurred or are occurring and, indeed, gradually
deepening one’s understanding of what views each person holds.

For paper 3, statistics about transactions in the interbank market were

sought through personal contacts with the central banks in Sweden and the
UK. Moreover, governmental reports were accessed and downloaded from
the websites of Sweden’s Ministry of Finance and treasury department (e.g.,
Finansinspektionen, 2010; Ingves & Molin, 2009; Nygren, 2010). The statistics
and reports were obtained before conducting interviews, and ensured that I
was conversant in the areas of inquiry, and was in a position to quickly
relate to responses that included numbers, dates, and other specific data.
During the post-interview efforts, these statistics and reports provided basic
tools for cross-checking the consistency of interviewers’ responses in relation
to quantitative details, for example, specific years or amounts of money. One
major reason why statistics and reports were not used extensively during the
interviews was to give latitude for bank employees to articulate perceptions
and intentions rarely expressed in such public records.

58
Data analysis
For analytical purposes, I compiled text-based scripts from the interviews,
field notes, and public records. Generally, the analysis of qualitative data
seeks to understand the world of human experience (Cohen, Manion, &
Morrison, 2007), and the researcher uses his or her own personal experiences
as well as the interviewees’ views of the object being studied (Creswell,
2003). In this process, I also used the GFC as a pertinent parameter.
Specifically, the data analysis presented in papers 1–3 was intended to
develop themes from the data based on “pattern[s] of meanings” (Creswell,
2003). To inform the analysis during this process, I used specific frameworks
and theoretical concepts (Chapman, 2008), which are presented in more
detail in papers 1–3. It is worth noting that the data analysis for the strategic-
level papers turned out to be time consuming (cf. Vaivio, 2008). Moreover,
the three papers were revised several times before being accepted by the
related journals for publication.

3.5.2 Data collection and analysis for the operational-level studies

This subsection traces how the data collection and analysis techniques were
employed for the operational-level studies. Table 4 presents RQ2,
summarizes the data collection and analysis processes for papers 4 and 5,
and outlines the structure of the subsection.

59
 Table 4: Overview of techniques employed to address RQ2

RQ2: How do bank loan officers deal with risk at the operational level during a banking crisis?

Paper Data collection Data analysis

4 Pre-study with three senior loan officers in January 2009 to elicit relevant elements Principal component
and constructs for the grid form. analysis of grid data.

Pilot study of the grid form with a senior bank loan officer in February 2009. Interpretation of aggregated
grid data, retests, focus
Main study of 75 bank loan officers at Bank C in spring 2009. The main study used group interviews, and
the grid form of 13 elements and 13 constructs and included questions about responses to background
interviewee background (e.g., age, education, and gender). Also, complementary questions.
open-ended questions were asked.

5 Retests with six of the 75 bank loan officers in autumn 2009. Seemingly unrelated

60
regression analysis of grid
Focus group interview with five of the 75 loan officers in December 2009. data.

Interpretation of statistical
analyses and responses to
background questions and
open-ended questions.
Data collection
As indicated by Table 4, the data collection for papers 4 and 5 was the same
and included several activities that fall into three categories: preparing the
grid form, conducting the main study, as well as interviewee checking
through six retests and a focus group interview.
To prepare the grid form, the first step (i.e., the pre-study) was to select a
set of relevant elements and constructs through involving three senior bank
loan officers from three banks (cf. Fransella et al., 2004). These senior bank
loan officers (not participating in the main study) were each given the
opportunity to select three cases of SME loan applications and to describe
how and why two cases were similar to and different from the third case (cf.
Fransella et al., 2004; Jankowicz, 2004). After repeating this process several
times, a list including a large number of elements and constructs was
assembled (cf. Bell, 2004; Gjerald & Ogaard, 2010; Kovářová & Filip, 2015).
This list was reduced and filtered through additional interview sessions
with the three designated senior bank loan officers. Preparing the grid form
included another testing step. The pilot study tested a grid form consisting
of 13 elements × 16 constructs. This test involved the participation of another
senior bank loan officer from another bank (not participating in the main
study). He was asked to use a Likert-type scale (1–7) to record his responses
to the grid form, and the responses were analysed statistically. Based on the
results of these analyses, the pilot study resulted in a final grid form
consisting of 13 elements × 13 constructs.
For the main study, 75 interviewees from Bank C participated between
March 2009 and June 2009. The recruited bank loan officers worked at 22
branch offices in three counties organized under one of the bank’s six
regional divisions. Bank loan officers with less than six months’ employment
were disregarded as per advice from the bank’s local management. In
conducting the main study, the 75 interviewees were given a grid-form
survey containing 13 elements × 13 constructs (see Appendix E). The
interviewees were asked to use a Likert-type scale (1–7) to record their
responses. To complete the grid, the interviewees were provided both a
printed interview guide and verbal instructions when going through the
survey. In addition, the interviewees were asked to give details about their
backgrounds and to respond to five complementary open-ended questions.
See Appendix F for the background questions and the complementary open-
ended questions. To run the grid interviews efficiently, the interviews took
place at the participants’ branch offices. Although some interviewees
participated jointly with other interviewees at the branch offices, each bank

61
loan officer responded individually to the grid form, background questions,
and complementary open-ended questions. More details about the data-
collection process are provided in papers 4 and 5.
For interviewee checking, grid interviews were conducted for retest
purposes in fall 2009. The interviewees were six bank loan officers from the
main study. They received a remodelled grid form, to which they responded
according to the interview guide and verbal instructions for the main study.
After each retest, an interview was conducted that entailed in-depth
exploration of differences between the individual responses to the main
study grid form and the retest grid form (cf. Öhman et al., 2006). For
interviewee checking purposes, a focus group interview session was also
conducted in December 2009. Five bank loan officers from the main study
were invited to this session, at which the quantitative findings of the main
study and retests were presented and discussed. In this way, the bank loan
officers interpreted the preliminary results, and the process was
documented in notes. It should be noted that several questions had been
prepared in advance for the focus group interview (see Appendix G). In
section 3.6, I provide more rationale for the use of retests and a focus group
interview.

Data analysis
The data analyses for papers 4 and 5 differed slightly and are therefore
presented separately. For paper 4, the quantitative data from the main study
and the retest were analysed using principal component analysis (cf.
Fransella et al., 2004; Jankowicz, 2004). For this analysis, three computer
programs were used: FLEXIGRID 6 (Tschudi, 1998) and REP 5 (Gaines &
Shaw, 2009) were used to administer and analyse the individual grids, and
MULTIGRID 7.1 (Tschudi, 2001) was used to aggregate individual grids at
the group level. The qualitative data from the retests and the focus group
interview session were analysed through interpretations and discussions in
the research team. Paper 4 provides more details about the employed
techniques for data analysis.
For paper 5, a portion of the grid data from the main study was used.
This portion included one of the 13 elements (i.e., collateral) and three of the
13 constructs (i.e., three types of bank loans) aggregated at the group level in
a mean grid. The data were analysed by means of seemingly unrelated
regressions (Zellner, 1962) using SPSS 16 (Bell, 1997; Pallant, 2013) for the
technical parts of this analysis. The analysis also included interpretations of
the 75 bank loan officers’ responses to two complementary open-ended
questions. More details about this can be found in paper 5.

62
3.6 Research quality
3.6.1 Limitations
Like any other research, this thesis suffers from limitations. Studies of the
practice side of bank risk management are always limited by restricted
access to banks and their employees, especially, as in this case, when the
prerequisites for the research were not ideal to begin with. At that time, the
GFC was still pummelling the world, and several Swedish banks rejected my
research requests due to being in “crisis mode” (cf. Czarniawska, 2014). To
get around such access issues, I could have worked through “newspaper
articles and press releases” (cf. Hadjikhani et al., 2012). However, such a
research approach would have barely discerned the landscape of the object,
“covered … like an ‘iceberg’ … submerged from sight, widely ignored” (Tett,
2009, p. 6, cited by Lenglet, 2010). As a matter of fact, the media covered
bank risk management during the GFC, drawing it to public attention.
However, public attention can be fickle, especially when it is mediated
through the media (Soin et al, 2016).
Moreover, certain methodological choices led to further limitations. One
limitation was that I accessed only three banks to conduct the strategic-level
studies and only one bank to conduct the operational-level studies. This
means that the research results have limited generalizability in view of the
number of banks operating worldwide. Another limitation is that I did not
interview all the employees of the four banks and the key banking industry
institutions. A third limitation is that, as far as bank lending is concerned,
this thesis addresses risk management concerning bank lending to financial
institutions and companies in just one country. Related to this, I have not
examined every type of bank lending, such as retail lending. A fourth
limitation is that most data were collected at a time when the GFC was still
affecting the banks. The responses to the interview questions and the grid
form might well have been influenced by this circumstance.
The data for the strategic- and operational-level papers were not collected
using similar research methods. For example, the constructs elicited from the
RGT-related studies appeared to be highly context specific to SME lending
and not valid for interbank lending. In a similar vein, the data analyses did
not apply similar techniques, so the value of comparing the results of the
strategic- and operational-level studies is limited. The banks selected for the
strategic-level studies (Banks A, B, and D) and the bank selected for the
operational-level studies (Bank C) are also unrelated, further complicating
the comparison of the research observations at different organizational
levels.

63
 As far as the research findings are concerned, the appended papers will
not satisfy readers seeking precise descriptions of processes and structures.
The reader has to rely on my interpretations of the top bank managers’ and
high-ranking officers’ accounts, which are interpretations themselves (i.e.,
“interpretations of interpretations”) (cf. Miles & Huberman, 1994). The thesis
separately treats bank lending to financial institutions and companies in the
papers. In banks, however, lending to financial institutions and to
companies may be conducted by the same organizational unit and involve
the same bank employees. Moreover, the attempts to extrapolate from the
individual to the organizational level (e.g., papers 4 and 5) have limitations,
because the unique contexts particular to each bank loan officer are not
accounted for in the aggregated analyses.
When it comes to theories and frameworks, I have, for example, drawn
on personal construct theory (Kelly, 1955). Though the theory is powerful in
its own way, I draw on only parts of its full potential. Personal construct
theory includes eleven corollaries, of which I have selected six to apply here
(cf. Kelly, 1955). In investigating bank employees, I have mainly considered
responsibilities and cognitive processes that seemed relevant to bank
lending.

3.6.2 Validity and reliability of the strategic-level studies

I took several steps to increase the validity and reliability when collecting
and analysing the data for the strategic-level studies. First, interviews in the
context of scientific work require careful consideration of participant
recruitment, and conducting interviews entails preparing interview
questions, which was done by presenting and getting feedback on interview
questions at internal seminars at both CER and GRI, and preparing the
interviewees themselves. All interviewees were given a formal presentation
on the research project through an introductory letter, and their consent to
participate in the study was obtained through phone calls and emails.
Second, the interviews began with a short conversation about the
introductory letter, which had been emailed to the interviewees beforehand.
This conversation helped the interviewees recall the topic. A handful of the
interviewees had previously interacted with my research colleague at GRI or
with other researchers. However, others had not, and in these cases we gave
a fuller presentation of ourselves and of our respective academic
backgrounds and research ambitions. This step was seen as necessary to
allay confidentiality concerns and to distinguish our interrogatory style from
that of others conducting interviews, such as journalists (cf. Czarniawska,

64
2014). At the time of the GFC, banks and media were not exactly “best
buddies”, and we wanted to avoid situations in which the interviewees felt
uneasy responding to the interview questions.
Third, the mode of interviewing was active, meaning that the interviewer
and interviewee articulated ongoing interpretive structures, resources, and
orientations in what Garfinkel (1967) has called “practical reasoning”. Active
interviewing hinders the interviewees from becoming too comfortable, for
example, providing responses that one could simply read in the press, as the
interviewer can critically question what the interviewee says. Moreover,
active interviewing can be used to enhance the access to “interviewees’
interpretations” (cf. Gubrium & Holstein, 1997) and create opportunities for
conversation and argument, as noted by Kvale (2006). To create an active
interviewing mode, I was accompanied by the research colleague from GRI,
with whom I spent time before the interviews to become personally
acquainted and to reach agreement on appropriate approaches, as called for
by Czarniawska (2014).
Fourth, after each interview I discussed my immediate impressions with
my research colleague and made minor revisions to the interview questions.
Moreover, it should be noted that I conducted 13 of the 52 interviews on my
own. Five of these interviews were for the main study. They used the same
set of questions and lasted a similar length of time (approximately 45–60
minutes) as did the joint interviews conducted with my research colleague.
In the eight follow-up interviews, the procedures were similar to those of the
main study interviews. However, the follow-up interview questions were
narrower and more focused. In all, the interviews were all conducted in a
similar fashion in the beginning, so the fact that, towards the end of the
study, I conducted some of them on my own should not significantly affect
the overall results.
Fifth, additional data were collected to cross-check the consistency of
interviewees’ responses. As indicated, I conducted interviews outside the
three banks. For example, the interviews at the Financial Supervisory
Authority were intended to build an understanding of the background and
objectives of the regulatory requirements of the Basel Accords. These
interviews also inquired about advances and practical challenges associated
with the Basel Accords. The interviews at the national treasury department
and the Swedish central bank were intended to obtain an enhanced
overview of the protections offered to banks by the Swedish government
and central bank during the GFC. Such triangulation can enhance the
robustness of findings (Olsen, 2004).

65
 Sixth, according to Czarniawska (2014), the actual location of the
interview can affect the interviewee and his or her responses. For the
strategic-level studies, the interviews were conducted at the interviewees’
offices. Being in the field and taking the practitioners’ perspectives builds
one’s case for scientific authority (cf. Blumer, 1969). However, in one
particular instance, an interview was conducted at a location that was not
the interviewee’s office. This was simply because the interviewee had
recently retired and no longer had access to an office at the bank. This
interview ended up being longer than the others because this interviewee’s
greater time availability offered opportunities to obtain more in-depth
responses.
Seventh, the data analysis, such as writing up the fieldwork into a
believable story, involved two additional field engagements (cf. Alvesson &
Kärreman, 2007; Miles & Huberman, 1994). First, I revisited selected
interviewees and conducted additional interviewees in 2014 for follow-up
purposes, as mentioned above. These interviews provided opportunities to
see how the interviewees perceived the direction of my interpretations, and
their comments offered me guidance before finalizing the data analysis.
Second, it is important to note that I attended one practitioner’s conference
three years in a row, i.e., Risk Mind International 2014, 2015, and 2016. The
point of such engagements was to maintain dialogue with the field, thereby
building my instinctual understanding and ability to interpret interviewee
responses and see through accounts (Alvesson & Sköldberg, 2009). These
field engagements also helped me avoid overemphasizing my own
interpretations (cf. Van Maanen, 1979, 2015), helping me stay close to
practice.
Eighth, because I intended to illustrate their intimacy with practice, the
three papers present quotations from the interviewees. According to Mineev
(2014), quotations can illustrate the high specificity of research settings,
potentially building better understanding than that provided by previous
research efforts. Ninth, the data analysis required that I develop my personal
interpretative skills, something that Kärreman (2003) has called “identity
work”. This entailed recognizing my own role as an interpreter. According
to King (1996), one must dispel the fantasy that social scientists come
without personal values. In a similar vein, Alvesson and Sköldberg (2009)
suggested that all researchers possess unique experiences and are informed
about social practices. According to Creswell and Miller (2000), reflexivity
towards the self and others is a necessity for ensuring validity in research.
The data analysis also required that I mentally process ambiguous
quantitative and qualitative data and make “plausible connections” (cf.

66
Parker, 2012) to present a believable story of risk management “mysteries”
(cf. Alvesson & Kärreman, 2007).
Tenth, I tried several different styles of textual presentation and
organization before submitting papers 1–3 to scientific journals and having
the papers accepted for publication. Selecting among the multiple available
styles is not simply a matter of rational choice but of negotiating a labyrinth
of ways towards an effective presentation (Miles & Huberman, 1994). It is
also worth mentioning that during the 2010–2014 research period when I
was collecting data, one minor change in the interviewee set was observed:
the CRO of Bank B was replaced as he had been promoted.

3.6.3 Validity and reliability of the operational-level studies

This subsection includes descriptions of steps taken in the data collection
and data analysis to increase the validity and reliability of the operational-
level studies. First, when recruiting and preparing interviewees before the
project began, the research team formally presented the research project to
local management at Bank C, and their approval was obtained to conduct
the main study. At each interview session, the bank loan officers received an
in-person briefing on the research project and its purpose.
Second, the RGT entails certain design and data-collection challenges. In
subsection 3.4.2, I have already described how I worked through a research
team to deal with these potential challenges.
Third, according to Yorke (1985), what determines the validity of a grid is
the extent to which there is fit between the context of the grid, such as the
industrial setting, and the elements to which it relates. As previously noted,
the operational-level studies tried to meet these requirements by involving
three senior loan officers in eliciting relevant elements and constructs,
thereby building credibility by relating to SME lending practice. The grid
form was also tested before the main study for validation purposes (cf.
Marsden & Littler, 2000). Moreover, the pilot study was considered
necessary in order to test the practicality of scoring the elements and
constructs using a Likert-type scale (1–7) before a larger sample was
surveyed.
Fourth, minor actions were taken while collecting data for the main
study. Supplying the same constructs to all interviewees was beneficial for
the idea of running a large-scale investigation including 75 interviewees.
However, given Adams-Webber’s (2003) argument, the fact that the
interviewees used constructs elicited by others may cause validity issues,
because the constructs may not fall into the individual interviewee’s “range

67
of convenience”. Also, with reference to the individuality corollary, people
differ from each other in their constructions of events (Kelly, 1955). In the
best-case scenario, individuals prefer to use constructs elicited from
themselves, as Adams-Webber (1998) noted. To improve the personal
experience of the individual bank loan officers, the main study interviewees
were asked, after they had completed the grid form, to state to what extent
they wished to add/revise/delete elements or constructs. Notably, only a
handful of the 75 interviewees added/revised/deleted anything, indicating
that the interviewees perceived the research instrument to be relevant.
Fifth, we used several types of triangulation, through which the
operational-level studies verified the investigations to better access the
object of study. As Denzin (1978) pointed out, there are various types of
triangulation, e.g., convergent validation and holistic. In terms of convergent
validation, the first instance entailed translating qualitative data obtained
through a pre-study with practitioners into testable variables (i.e., elements
and constructs). The second instance of convergent validation entailed
scoring the elements and constructs quantitatively through a pilot study and
analysing the data using quantitative research methods (cf. Tashakkori &
Teddlie, 2003). The third instance involved verifying the generated results of
analysing quantitative grid data through the focus group session, which
included five bank loan officers (cf. Fransella et al., 2004). According to
Bouchard (1976), it is important that convergence between research methods
is reached for validation purposes and to rule out possible methodological
artefacts. In terms of holistic triangulation, the data analyses were
correspondingly conducted at the individual and aggregated levels (cf.
Fransella et al., 2004). In support of this triangulation, Kelly (1955)
proclaimed that constructs are partly individual and partly collective. The
retests offered opportunities to validate the data from the main study for
reliability triangulation. Simply stated, the bank loan officers’ experience
cycles were investigated over a six-month period to test for stability of
construing. To ascertain the validity and reliability of the RGT data, several
additional tests can be performed, such as testing for the homogeneity and
complexity of thought patterns and measuring the tightness of an
individual’s construct system (Walker & Winter, 2007). These tests were
incorporated into the data analyses.
Sixth, together with the co-authors of paper 4, I tried out different styles
of textual presentation and reorganization before the paper was accepted for
publication. Paper 5 also entailed collaborating with co-authors, though the
progress of this paper through prepublication efforts was much smoother,
probably due to the lessons learned from writing paper 4.

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4 Overview of the papers
This chapter presents an overview of the five constituent papers of this
thesis. The overview summarizes the attached papers’ purposes, methods,
theoretical frameworks, research findings, and contributions. In addition,
the full papers are appended at the end of the thesis. First, the three
strategic-level studies are presented, followed by the two operational-level
studies.

4.1 Strategic-level papers

The strategic-level studies presented in this section are papers 1–3.

4.1.1 Paper 1
Title: Risk management–control system interplay: Case studies of two banks
Author: Alexander Rad
Journal: Journal of Accounting and Organizational Change
Status: Published

A theoretical and practical problem in banks is how to link risk management

standards to various control systems and existing control practices. The aim
of this paper is therefore to explore the interaction between risk
management and control systems. In that way, the paper responds to
Gooneratne and Hoque’s (2013) call to study the interaction between control
systems in banks. The data collection included interviews with top bank
managers and high-ranking officers at two large Swedish banks (named
Banks A and B). The semi-structured interviews focused on bank top-
managerial intentions, i.e., choices regarding the use of control (cf. Tessier &
Otley, 2012). The data-collection process also included reviewing the two
banks’ annual reports for the 1990–2010 period.
When analysing the data, I applied Simons’ (1994) levers-of-control
framework to a fuller extent than in previous studies. The studies of Mikes
(2009) and Wahlström (2009b) only partially applied Simons’ (1994)
framework, while Mundy (2010) did not consider risk management as such
when studying banks. The framework suggests that the choices regarding
the use of control can range between belief systems, boundary systems,
diagnostic control systems, and interactive control systems. Moreover, the
interaction between these control systems needs to be designed to fit
business strategies and take into account strategic uncertainties.

69
 The research findings illustrate the choices made by top bank managers
regarding the use of control systems when implementing the Basel Accords.
It was found that belief systems drive the designed interaction between risk
management and control systems at both banks. This came as a surprise,
because large banks are not necessarily known for being influenced by their
belief systems, as reported in the literature (cf. Collier, 2005).
Moreover, the research findings illustrate how the designed interaction
between risk management and control systems fitted the respective banks’
business strategies. The investigation at Bank A found high aspirations to
comply with Basel II. An indication of this was that the bank had achieved
advanced Basel II certification earlier than the other large banks in Sweden. 44
Furthermore, at Bank A the number of risk experts was four times that at
Bank B. The background to this implied enthusiasm was closely tied to Bank
A’s top management, who intended to avoid the kind of near-default
experiences the bank had encountered earlier, i.e., strategic uncertainties.
During the Swedish Banking crisis in the 1990s, the bank had experienced
major credit losses and acute shareholder capital injection needs. The
investigation at Bank B identified low aspirations to comply with Basel II. By
setting low objectives for Basel II compliance, the top managers at that bank
kept established control practices and thereby avoided additional costs,
ensuring the stability of the bank’s low-cost strategy. Based on such findings
of differences in aspiration levels, the paper found that Banks A and B
approached the Basel II in their own unique ways, despite the notion that
the Basel Accords offer less room for divergence than does the ERM
standard (cf. Arena et al., 2010, 2011; Gray & Hamilton, 2006).
By focusing on the intended interaction between risk management and
specific control systems as well as by examining several integrated and
context-dependent issues at two banks, the paper illustrates the
complications that risk management brings to the use of MCSs in bank
lending (Bhimani, 2009; R. S. Kaplan & Mikes, 2016).

44
For compliance with Basel II, banks could choose different certification levels
such as advanced or foundational (Basel Committee on Banking Supervision, 2006).
Such certification levels are administered by the financial supervisory authority in
Sweden.

70
4.1.2 Paper 2
Title: Basel II and the associated uncertainties for banking practices
Author: Alexander Rad
Journal: Qualitative Research in Financial Markets
Status: Published

Studies (e.g., Giovannoni et al., 2016; Soin & Scheytt, 2008) have argued that
the Basel Accords and the emergence of group risk control offices highlight
the involvement of management accountants in the practice of management
control. The aim of this paper is to explore practical challenges in the
interactions between Basel II and banking practices. I used the semi-
structured interview technique and focused on perceptions, which in this
case, according to Tessier and Otley (2012), refer to employees’
interpretations of what the control is for. The data were collected mainly via
interviews with top bank managers and high-ranking officers at Bank A,
who had experienced threats to the bank’s long-term business strategy of
survival (i.e., major default) as a result of the GFC. These threats had forced
the bank to request additional capital injections from its shareholders for
recapitalization purposes. The bank’s annual reports from 1990–2010 were
reviewed during the data-collection process. For triangulation purposes, I
conducted follow-up interviews with selected interviewees at two other
large Swedish banks (Banks B and D) and several key banking industry
institutions in Sweden.
The interviews resulted in statements about the practical challenges of
applying Basel II in bank lending to companies. In filtering these statements,
I used a typology of three types of uncertainties, i.e., estimation difficulties,
judgment fallacies, and lack of cognitive references (cf. Brunsson, 2007), and
found that top managers at Bank A took several actions to reduce each type
of uncertainty appropriately. The first example action, discussed below,
relates to estimation difficulties, and the second to lack of cognitive
references.
In the first example action, top management at Bank A sanctioned the
acquisition of additional resources for the bank’s group risk control office.
By buying access to external credit default databases, the top managers
envisaged opportunities to improve the risk experts’ measurement and
quantification capabilities. Also, the group risk control office had been
assigned a CRO and its headcount of risk experts was increased.
In the second example action, the top managers at Bank A had
redesigned the interactions between risk experts (e.g., strategic-level

71
employees) and decision makers at branch offices (e.g., operational-level
employees) to reduce the uncertainty related to lack of cognitive references.
This redesign hindered risk experts from influencing decision processes
regarding bank lending to companies. Simply stated, loan origination had
been decentralized to the branch offices, so from the perspective of top
management, the problem of the risk experts’ lack of cognitive references no
longer existed.
Top managers’ and risk experts’ statements about the practical challenges
of applying Basel II corroborated the other researchers’ findings. For
example, Wahlström (2006) also studied bank employees’ perceptions of the
practical challenges of implementing the Basel Accords. However, his study
dealt with Basel I and not particularly with bank lending and credit risk (it
was about operational risk), and was not conducted at the time of a banking
crisis. He found that top managers and risk experts provided opposing
statements about the possibility that the abovementioned actions could
reduce the uncertainties stemming from the practical challenges of
implementing the Basel Accords. Whereas top managers did express
negative outlooks, the risk experts expressed positive outlooks on acquiring
and implementing “more and better” resources, such as information
systems. Potentially, however, the severe impact of the GFC on Bank A
could have motivated these parties to provide corroborative statements
about the limited value of using risk-based measures to inform loan
origination and portfolio monitoring.
The present paper contributes to the literature (e.g., Kaur & Kapoor, 2015;
Wahlström, 2009b) in that it collected data after the implementation
timeframe of Basel II had ended. The paper also highlights top bank
managers’ continuous suspicion of the expert role management accountants
play in banks. The issue of suspicion of management accountants has been
highlighted elsewhere before (Collier & Berry, 2002; Mikes, 2011; Soin &
Scheytt, 2008).

72
4.1.3 Paper 3
Title: The importance of trust for inter-organizational relationships: A study
of interbank market practices in a crisis
Author: Alexander Rad
Journal: Qualitative Research in Accounting & Management
Status: Accepted for publication

Literature reviews find that the banking industry has been largely ignored
by previous studies of inter-organizational relationships (Caglio & Ditillo,
2008; Håkansson & Lind, 2006; Meira, Kartalis, Tsamenyi, & Cullen, 2010). In
response to this notion, this paper explores risk management practices in the
interbank market. The data were collected through interviews with top bank
managers and high-ranking officers at two large Swedish banks (Banks A
and B) and with representatives of several key banking industry institutions
in Sweden. The interviews were semi structured and explored crisis-
contingent actions and decision making during the GFC. Additional data
were collected through governmental reports on rescues of Swedish banks
during the GFC and statistics about interbank transactions in Sweden and
elsewhere.
In analysing the data, I used concepts from the trust literature. According
to Möllering (2001), trust can arise from institutional and relational bases.
Moreover, trust arises through a process involving both positive and
negative expectations. The importance of considering trust when studying
interbank lending in a banking crisis is supported by the notion that the GFC
was a crisis of trust (Baldvinsdottir, Hagberg, Johansson, Jonäll, & Marton,
2011).
The study of interbank lending broadly confirms the view that it is
difficult to obtain information about banks and financial institutions as
borrowers, due to their complex and opaque nature. This problem becomes
especially critical in a banking crisis. Several reasons for not lending to
financial institutions during a banking crisis can therefore be argued for,
such as the potential for huge credit losses. On the other hand, several strong
reasons for interbank lending in the midst of a banking crisis were also
found. Many of these reasons highlighted by the interviewees confirm
previous research findings, including the ongoing settlement and netting
needs between financial institutions as well as obligations established by
central banks to preserve the financial stability of countries (cf. King, 2008).
It was also found that interbank lending continues even during a banking
crisis due to the existence of network relationships in capital markets,

73
suggesting that banks support each other with liquidity through harsh times
(e.g., a credit crunch).
Research findings indicate that the investigated banks used trust-based
partner-selection criteria and performance-control processes to maintain and
safeguard network relationships. Long-standing relationships and positive
reciprocity were found to exemplify necessary partner-selection criteria
before a bank could be considered part of the network. In relation to
performance-control processes based on trust, information-sharing practices
existing in the banking industry were found to alleviate control problems in
the interbank market. In addition to various accounts of the use of trust, top
bank managers at both banks were personally involved in selecting
counterparties and monitoring their performance.
This paper contributes to the accounting and management control
literature concerned with inter-organizational relationships. In particular,
the paper highlights the potential influence trust may have on control (cf.
Baldvinsdottir et al., 2011; Vosselman & van der Meer-Kooistra, 2009). By
focusing on trust, the paper confirms that pressure was exerted on
information systems oriented towards hard information and control
purposes when the banking environment became turbulent (cf. Hopwood,
2009a).

4.2 Operational-level papers

The presentation of the operational-level studies covers papers 4 and 5.

4.2.1 Paper 4
Title: How lending officers construe assessments of small and medium-
sized enterprise loan applications: A repertory grid study
Authors: 45 Alexander Rad, Olof Wahlberg, & Peter Öhman
Journal: Journal of Constructivist Psychology
Status: Published

In view of the intense impact of bank risk management at the operational

level (e.g., Mikes, 2009), this paper maps and analyses how bank loan
officers perceive SME loan assessment. Data were collected through the RGT
using a grid form consisting of 13 elements × 13 constructs. The paper used
the RGT to a fuller extent than have previous bank lending studies (e.g., F.
Wilson et al., 2007), and 75 bank loan officers employed at Bank C

45
Joint authorship.

74
participated in the main study. For triangulation purposes, three pre-studies,
a pilot study, six retests, and a focus group interview were conducted. The
bank loan officers’ individual cognitive maps were aggregated to provide a
holistic overview of these employees’ perceptions at the group level. In
addition, data were collected on the bank loan officers’ backgrounds. The
data analysis comprised principal component analysis and related
interpretation.
The theory underlying the RGT is personal construct theory. In this
theory, an element is a unit of reflection and meaning (e.g., collateral), while
a construct is one’s evaluative judgment of the element’s particular features
and attributes. If a construct is relevant to a bank loan officer, his or her
utterances expressing evaluative judgments provide an understanding of
this person’s cognition. These utterances can be measured by how this
person scores the element based on a construct measured using a Likert-type
scale (Fransella et al., 2004). The paper also draws on the SME lending
literature, which indicates that bank loan officers gather and assess various
types of information about borrowers, and that bank loan officers make
demands for collateral (e.g., Trönnberg & Hemlin, 2014). Moreover, this
literature finds that SMEs may require bank loans for three purposes: to start
up the business, to support underperforming operations, and to finance
business expansions (Deakins et al., 2010).
Among this paper’s findings is that bank loan officers assess SME loan
applications according to lending procedures applying to all types of bank
loans. This finding was based on analysing the bank loan officers’ construing
at an aggregated level. This analysis resulted in Figure 5, which plots the
positions of constructs and elements along two axes.

Soft
information

Historical Future-oriented
information information
X

Hard
information

Figure 5: The mean grid (adapted from paper 4).

75
 The right-hand end of the horizontal dimension is interpreted to be about
future-oriented information and the left-hand end about historical
information. The upper end of the vertical dimension is about soft
information, and the lower end is about hard information. In the lower-right
quadrant in the map (marked by the letter X), procedural lending comprises
three constructs: the Basel Accords, the lending strategy of the bank, and the
bank’s information systems.
Regarding the Basel Accords construct, it is recognized that this standard
imposes requirements for the use of particular information (e.g., internal
ratings, which predict borrowers’ future potential for credit losses). Related
to the bank lending strategy construct, the bank is considered centralized in
terms of how decisions related to SME lending are made. Related to the
supporting systems construct, the use of such information systems can offer
the benefit of assessing and evaluating information about borrowers in an
objective and automated manner. Moreover, such information systems can
efficiently disseminate information within bank organizational hierarchies
(Kumra et al., 2006; Rada, 2008).
To control for adherence to lending procedure, bank loan officers were
checked for potential differences in location (22 branch offices) as well as in
age, education, gender, insight, and tenure. No significant differences were
found in the groups’ construing at an aggregated level (cf. Bruns et al., 2008).
The paper contributes to the SME lending literature by examining a set of
first-hand information (i.e., 13 elements) that the investigated bank loan
officers used in assessing loan applications, as well as the influence of
various aspects (i.e., 13 constructs). The paper provides a holistic overview
of SME loan assessments, indicating that reliance on hard and/or soft
information is complex and driven by more than just a few context-
dependent factors. Procedural-based lending, emphasizing hard and future-
oriented information, is primarily based on the Basel Accords, bank lending
strategy, and bank information systems. Moreover, and in contrast to
previous findings, roughly the same assessments seem to be made
irrespective of type of loan, i.e., regarding loan applications for start-ups,
funding underperforming operations, and financing business expansion (cf.
Deakins et al., 2010).

76
4.2.2 Paper 5
Title: Female and male risk aversion: An empirical study of loan officers’
assessment of SME loan applications
Authors: 46 Alexander Rad, Darush Yazdanfar, & Peter Öhman
Journal: International Journal of Gender and Entrepreneurship
Status: Published

It has been argued that female loan officers are less risk averse than their
male counterparts, though findings from various settings are inconsistent
(Bellucci et al., 2011). This paper analyses female and male loan officers’ risk
aversion in assessing different SME loan types. 47 To study potential gender
differences in a situated setting, the investigations took place in a country
(Sweden) considered gender equal and in a bank with explicit gender-
equality policies in terms of employing females and males in its workforce.
As a point of departure, this paper used the same data collected for the
other operational-level paper (paper 4). More precisely, this data captured
collateral (i.e., one of the 13 elements) and three types of bank loans (i.e.,
three of the 13 constructs). In addition, data were collected on the 75 bank
loan officers’ background variables and responses to open-ended questions.
The data analysis included seemingly unrelated regressions, additional
statistical analysis, and interpretations of the statistical results.
The paper drew on the SME lending literature, which distinguishes
between loans for start-ups, funding operations, and financing investments
(Deakins et al., 2010). Each type of loan may cause credit losses for the bank,
though this potential differs between types. Moreover, the literature
demonstrates that bank loan officers’ gendered risk aversion can affect
assessments of SME loan applicants (Bellucci et al., 2011).
The research findings indicate that, in assessing SME loan applicants, the
bank loan officers made few distinctions between the different loan types. At
the same time, it was observed that female bank loan officers made higher
collateral demands when assessing loan applications for start-ups than did
their male counterparts. However, in the case of the other two loan types
(i.e., loans for funding underperforming operations and financing business
expansion), the female and the male bank loan officers displayed similar risk
aversion in terms of the weight they placed on collateral.

46
Joint authorship.
47
Gender is treated as a different phenomenon from sex, being viewed as situated
rather than static (Gatens, 2003).

77
 The paper contributes to the SME lending literature by considering
different bank loan types in investigating female and male bank loan
officers’ cognition. By its findings, the paper confirms that differences
between female and male risk aversion cannot be understood in a
straightforward fashion. Contingencies influence the displayed risk
aversion, and female loan officers are seen to be more risk averse than male
loan officers only in situations in which information about the borrower is
particularly scarce and the uncertainty in terms of lack of information is
particularly great.

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5 Concluding discussion
To begin with, I recap the problematization that motivated this thesis, and I
reiterate the overall aim and the two research questions (RQs). Following
that, I discuss the findings of the strategic- and operational-level studies.
This is followed by a section addressing the theoretical, practical, and
methodological implications of this research. Before ending this chapter, I
identify avenues for future research.

5.1 The point of departure

Accounting and management control researchers (Arena & Arnaboldi, 2014;
Arena et al., 2010, 2011; Giovannoni et al., 2016; M. Hall et al., 2015; Mikes,
2009, 2011; Wahlström, 2006, 2009b) have found that standards such as the
Basel Accords are intended to offer several advances such as interactive
surveillance and sophisticated performance control for strategic-level bank
employees, such as top bank managers. The intended advances for
operational-level bank employees, such as bank loan officers, are improved
control and efficiency in day-to-day decision making. Realizing these
advances entails exploiting several means, such as centralization, acquiring
and using information systems, and employing risk experts.
However, for bank employees standards come with certain practical
challenges that generate risks of three types: (i) risks that appear in the
complex interactions between regulations and practice; (ii) (un)intended
risks produced by the organization itself; and (iii) risks arising from
evolving and emerging events (Power, 2005; Scheytt et al., 2006; Soin et al.,
2016).
Bank employees must deal with these risks because they negatively
influence the possibility of achieving the advances that the standards were
to bring about. At the outset of this thesis, it was stated that dealing with
risk is about designing, implementing, and using appropriate controls that
ensure controllability, as well as gathering and assessing relevant
information. Moreover, dealing with risk is embedded in managerial
processes in specific organizations and is thus context dependent (Bhimani,
2009; R. S. Kaplan & Mikes, 2016; MacCrimmon & Wehrung, 1990; March &
Shapira, 1987).
As reported by the abovementioned researchers, bank employees at
various organizational levels may perceive the practical challenges
associated with standards in different ways, and these challenges may
intensify in particular situations. In contributing to the literature, this thesis

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examines bank employees’ perceptions of the Basel Accords after the global
financial crisis, and top bank managerial intentions when applying the Basel
Accords.
This brings us to the overall aim of this thesis, and to the two RQs. The
overall aim of this thesis is to examine the perceptions and intentions of
bank employees at different organizational levels during a banking crisis to
foster an understanding of bank risk management. RQ1 is as follows: How
do top bank managers deal with risk at the strategic level in a banking crisis?
RQ2 is as follows: How do bank loan officers deal with risk at the
operational level in a banking crisis? In the following, I discuss the findings
of the strategic- and operational-level studies, which were conducted in
response to RQ1 and RQ2 respectively.

5.2 Dealing with risk at the strategic level

This discussion is based on the findings of papers 1–3. These strategic-level
studies targeted a large number of top bank managers and high-ranking
officers at three large Swedish banks and several key banking industry
institutions. At an overall level, the investigated top bank managers deal
with risk by

 designing interactions
 information augmentation

5.2.1 Designing interactions

To illustrate how top bank managers deal with risk by designing
interactions, I begin the discussion by drawing on the findings of paper 1,
which addresses risks that appear in the complex interactions between
regulations and practice (i.e., the first risk theme). The findings of paper 3
inform the further discussion of the design of interactions, addressing risks
arising from evolving and emerging events (i.e., the third risk theme)
This thesis presents findings indicating that top bank managers deal with
these risks when implementing Basel II. In this process, top bank managers
make design choices between the uses of several control systems, namely,
belief systems, boundary systems, diagnostic control systems, and
interactive control systems (cf. Simons, 1995). These choices inevitably touch
on the interactions between these control systems, which are a source of
tension between control systems and likely influence the use of standards
(cf. Simons 1995). This thesis found that the designed interactions at Banks A
and B severally determine the extent to which the banks exploit the chosen

80
means to realize the potential of the Basel Accords, means such as
centralization, information systems, and risk experts (cf. Mikes, 2011;
Wahlström, 2006, 2009b). More importantly, the thesis found that the
designed interactions resulted in contrasting implementation of Basel II for
bank lending to companies in terms of centralization (Bank A) versus
decentralization (Bank B) and in the employment of four times more risk
experts in Bank A than in Bank B.
Previous findings indicate that banks use standards in various ways,
confirming the relevance of the present findings regarding the use of Basel
II. For example, Mikes (2009, 2011) studied five UK-based banks’ adoptions
of the enterprise risk management standard. Her findings indicate that
different banks emphasized the acquisition and use of information systems
and the employment of risk experts in different ways. Among other things,
she found that while the group risk control offices of three banks were
dedicated to measuring and quantifying bank risks, rigid boundary work,
and less involvement in decision making, 48 the group risk control offices at
the other two banks took a dissimilar route. These banks put less emphasis
on measuring and quantifying bank risks and on porous boundary work,
instead playing the devil’s advocate in decision-making processes.
The fact that different banks adopt standards in different ways is in line
with the argument that risk management is context dependent (cf. Bhimani,
2009; R. S. Kaplan & Mikes, 2016). Such diversity can be criticized by
regulators because it may offer banks opportunities to exploit loopholes in
banking laws (cf. Ambrose et al., 2005). However, the fact remains that top
bank managers are ultimately responsible for business strategies, which
entails introducing policies for standardization and maintaining consistency
(cf. Sutcliffe & McNamara, 2001). In this process, managerial interpretations
of the past and future is critical to how top bank managers deal with risk.
This thesis also presents findings indicating that the design of
interactions is significant during evolving and emerging events. The
investigation underlying paper 3, which explored the interbank market
during the GFC, found that complex interactions appear between the
institutional and relational bases of trust. In the literature, institutional trust
and relational trust are presented as conceptually separable entities drawing
on embeddedness and agency, respectively (Simmel, 1950; Zucker, 1986).
However, trust researchers hold that studies could well identify more
intimate relationships between the two bases of trust when investigating

48
According to an overview by Kuritzkes and Schuermann (2010), bank risks can be
classified as financial and non-financial risks.

81
trust in empirical settings (Möllering, 2005; van der Meer-Kooistra &
Scapens, 2008), as there are micro and macro processes that, from time to
time, interact (Mineev, 2014). The present findings indicate that these two
bases intertwined through top bank managers’ measures to deal with risk. It
was found that top bank managers perceived that the agency of individual
government representatives could negatively influence expectations
regarding government rescue programmes, drawing primarily on
institutional trust and the intended resolution of the credit crunch in the
interbank market. It was also found that the bank employees’ perceptions of
embeddedness could influence the extent to which network relationships in
capital and financial markets could be expected to support measures to deal
with risk. These relationships were regionally based in some cases and
international in others. Nevertheless, the relationships were associated with
positive expectations and required symmetrical behaviour by the
counterparties. How these conceptually distinct but practically joined bases
of trust provided for control of interbank lending was found to rely on the
interaction designed by top bank managers. Top bank managers at both
investigated banks (Banks A and B) displayed similar ways of dealing with
risk in terms of designing interactions.

5.2.2 Information augmentation

Information augmentation was observed in several ways. To illustrate how
top bank managers deal with risk by augmenting information, I begin the
discussion based on findings of paper 2, which addresses the (un)intended
production of risk by the organization itself (i.e., the second risk theme). I
then discuss the findings of paper 3, which addresses the third risk theme.
As per the findings of paper 2, the top bank managers and risk experts
both confirmed the practical challenges of implementing Basel II. To explore
the relevance of these challenges, the investigations targeted Bank A, to
reveal the extent of the second risk theme. Despite its high aspirations to
implement Basel II, Bank A accrued major credit losses. As a result, it was
forced to participate in a government rescue programme and to ask its
shareholders for an additional capital injection to avoid bankruptcy.
It was found that top bank managers addressed the second risk theme by
seeking “efficiency” (cf. Fama & Jensen, 1983). By adding more resources
and increasing the number of risk experts in the bank by 50 per cent, top
bank managers improved the group risk control office’s information
processing. Information augmentation was observed in the way top bank
mangers expanded the upstream consequences of the bank’s group risk

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control office to encompass top management and supervisory authorities,
for example, through additional management reporting and involvement in
compliance-related tasks.
Moreover, information augmentation was also observed in the way top
bank managers reduced the downstream consequences of the group risk
control office for branch offices and loan officers. As previously noted, risk
experts are specialized management accountants who are normally
positioned at bank headquarters (i.e., the strategic level of bank
organizations). Through measurement and quantification, risk experts
provide information (e.g., internal ratings) that facilitates control over the
decision making of bank loan officers, who are positioned at the operational
level of bank organizations. The objective of reducing the downstream
consequences was to hinder the risk experts from influencing bank loan
officers’ decision making regarding bank lending to companies. This had
been demanded by operational-level bank employees because they
perceived problems in information flows before decision making as a result
of using risk-based measures (cf. Simon, 1947/1997). In her study of risk
experts in five banks, Mikes (2011) found that some banks dismissed risk
experts as Bank A had done. According to Mikes (2011), risk experts come
with professional accountability and dismissal offers possibilities to evade
responsibility and blame.
The redesign of interactions between different organizational levels and
the reassignment of responsibilities of bank employees at the strategic and
operational levels required action by top bank managers, implemented by
means of their facilitative capacity. According to Clegg (1989), this
exemplifies how power in terms of facilitative capacity can be used to set the
level of agency empowerment.
This thesis also presents findings confirming that practical challenges
tend to intensify during evolving and emerging events. To present a relevant
case of the third risk theme, the investigations targeted the credit crunch that
followed the GFC and affected interbank lending. As mentioned, various
bank risks such as credit risk and liquidity risk emerged during the credit
crunch. The emergence of these bank risks also threatened the financial
stability of several countries (cf. Gabrieli, 2009; Ji & In, 2010; Munkhammar,
2011; Stinespring & Kench, 2009). The investigations of Banks A and B found
that top bank managers dealt with risk by becoming personally involved.
This involvement was necessary to safeguard network relationships with
institutions in the financial and capital markets. Such networks are long
standing (cf. Mayer, 1976) and membership in them requires acceptance of
shared banking industry values and beliefs (cf. Ouchi, 1980). Through these

83
relationships, the top bank managers augmented information, for example,
by securing access to hard information, such as the counterparty’s trading
books, and by taking account of soft information, such as the counterparty’s
displayed goodwill regarding transactions in the financial and capital
markets. The acquired information was considered relevant given the nature
of the situation and facilitated efficiency in “delivery process setups” (cf.
Ouchi, 1979) in the interbank market. The expected efficiency was
considered necessary due to the failure of information systems such as credit
ratings.
The findings of this thesis confirm that in a turbulent environment,
managers have to consider information alternative to that produced by
standard information systems (Hedberg & Jönsson, 1978), and that the
information used reflects the impact of the environmental context
(Hopwood, 2009a). The findings also confirm that interbank lending is a
critical channel for funding banks (cf. Beaupain & Durre, 2008; Demiralp et
al., 2006; Huertas, 2011; King, 2008) even during a banking crisis. In line with
previous findings (e.g., Furfine, 2002), I found that interbank counterparties
try to maintain transactions due to frequent transaction settlement and
netting needs between banks.

5.3 Dealing with risk at the operational level

This discussion of the operational-level studies includes findings from
papers 4 and 5. These studies targeted a large number of bank employees
dispersed throughout several branch office locations of Bank C, one of the
four largest Swedish banks. Overall, this thesis adds to the literature a
holistic overview of SME loan assessment, specifically indicating that bank
loan officers deal with risk by

 adherence to procedural lending

The bank loan officers’ adherence to procedural lending was revealed by

their collective reliance on hard and future-oriented information and their
collective downplaying of soft and historical information. As discussed,
Basel II introduced the use of internal ratings gauging borrowers’ potential
to default in the future (Jacobson et al., 2006). Also, the lending strategy of
the bank guided the loan officers to proceed with assessments in a
centralized fashion, implying that final decisions on bank loan applications
were made at an upper level. A focus on hard information suits centralized

84
banks when the decision authority for loan origination resides at an upper
level (J. C. Stein, 2002).
Supporting the finding of adherence to procedural lending is the fact that
the bank loan officers understand their task performance regarding SME
lending in a uniform way. When controlling for branch office location, no
significant differences were found between groups of loan officers. This
could be interpreted as indicating that adherence to procedural lending is
not limited to a particular business location but rather is embedded in
managerial processes across the bank organization. Furthermore, no
significant impact on the assessment of SME loan applications was found
stemming from bank loan officers’ age, education, insight, or tenure.
When controlling for gender, however, female bank loan officers,
compared with their male counterparts, were found to make relatively
higher collateral demands in the case of SME loans to start-ups (i.e., one of
the three types of bank loans under study). What is particularly interesting is
that the female and male bank loan officers differed in their assessment of
the type of loan associated with the greatest uncertainty (i.e., the largest
information asymmetry between the loan officer and the borrower). These
results indicate that, regarding this type of loan, female bank loan officers
are more risk averse than are male bank loan officers. However, regarding
the other two types of bank loans, the loan officers, regardless of their
gender, made similar collateral demands before assessing SME loan
applications. This indicates that gender differences should not be seen as
related to risk aversion per se. Gender is a situated phenomenon (Gatens,
2003), and in some cases even outweighs the effects of adherence to
procedural lending.
The findings indicate that realizing the advances associated with
standards entails a focus on hard information (e.g., cash flow statements: cf.
Berry & Robertson, 2006) that is particularly important for loan assessments
by bank loan officers, who individually put less emphasis on soft
information (cf. Trönnberg & Hemlin, 2014). In a way, the present results
contrast to previous findings that hard and soft information are
complementary (Bartoli et al., 2013), and that soft information is particularly
important in SME lending (e.g., Chollet et al., 2014; Hill & Scott, 2015).
Also in contrast to other studies (e.g., Deakins et al., 2010), it was found
that different types of loans are assessed in roughly the same way. SMEs
request bank loans to fund start-ups, short- and intermediate-term shortfalls
in working capital, and investments in fixed assets and business expansion
(Deakins et al., 2010; Nofsinger & Wang, 2011). This similar treatment of
different types of borrowers could have resulted from bank loan officers’

85
reactions to the risk that appeared during the evolving and emerging
banking crisis (i.e., the third risk theme).
Moreover, the findings indicate that Bank C heavily emphasized the use
of information systems, which efficiently handle the computation,
transmission, and storage of information (cf. Kumra et al., 2006). Two
potential benefits of adherence to procedural lending are that the entire
organization is driven towards risk-averse behaviours and that strategic
control is achieved (cf. Power, 2004b). However, realizing this intended
advance may also result in the (un)intended production of risk by the
organization itself (i.e., the second risk theme). In line with Öhman et al.’s
(2015) argument, although procedural lending may help prevent type-II
errors (i.e., bank loan officers focus on avoiding credit losses), it could lead
to more type-I errors (i.e., bank loan officers neglect earning opportunities).
The dilemma is that bank loan officers tend to focus on avoiding credit
losses to the detriment of improving earning opportunities.

5.4 Implications
In this section, I present the theoretical, practical, and methodological
implications of this research. In elaborating on them, I had to recall that
central to the problematization presented in the introduction was the fact
that bank risk management research suffers from certain gaps (e.g.,
Hopwood, 2009b). According to Van de Ven and Johnson (2006), gaps
between theory and practice can be framed in three ways: i) as a knowledge
transfer problem, ii) as representing distinct kinds of knowledge, and iii) as a
knowledge production problem. This thesis assumed that research gaps as a
knowledge production problem are aptly addressed through research in the
field. Field studies were recommended around the time I began this thesis
research, when the conditions for conducting research were affected by the
GFC. According to R. S. Kaplan (2011), field studies entail leaving the “ivory
tower”, and major changes following in the wake of crises provide
opportunities to advance knowledge.

5.4.1 Theoretical implications

The theoretical implications for accounting and management control studies
constitute the next topic of discussion. The contributions of the strategic- and
operational-level studies were presented in detail in chapter 4 because they
were pertinent to the context of each paper. The initial step in addressing the
overall theoretical implications of the thesis entails synthesizing the
idiosyncratic and disjointed theoretical contributions of the five papers.

86
Moreover, subjective assessment is required as to whether this thesis’
contribution can be classified according to Huff’s (1999) distinction between
contributions that are part of existing conversations and contributions that
start new conversations. As noted, risk management results from the
formalization of internal control and is intended to improve and enhance
managerial control, although it is hindered by practical challenges (Power,
2005). This thesis has attempted to confirm the extent of practical challenges
in terms of the three risk themes by studying practice, i.e., actions informed
by meanings grounded in specific contexts (Cook & Brown, 1999). The
studies were conducted in light of a particular environmental context and
via novel recursive dialogues with practitioners perceiving and interpreting
their worlds. This confirmation should not be viewed as an attempt to
initiate new conversations about bank risk management.
The second step in addressing the theoretical implications of this thesis
entails reiterating the motivations that inspired this work in the first place.
The intention of this research was also to respond to contemporary calls for
more research in the area (Gooneratne & Hoque, 2013; Wilson et al., 2010).
Achieving a deeper understanding of bank risk management required
exploring the context dependencies of this subject in the bank lending
setting. Using an eclectic approach to theory selection and staying close to
the bank organizational realities presented by practitioners gave a
prominent position to incremental rather than revelatory theory
development (cf. Corley & Gioia, 2011).
By starting from context dependency, the thesis is not attempting to
provide a universal model of how banks should implement standards
effectively. The normative literature (e.g., Aebi et al., 2012; Beasley et al.,
2005) and the Basel Accords often make divergent recommendations as to
how banks should effectively implement standards for addressing risks.
This literature typically expects to find direct links between standards and
popular points of departure in the accounting and management control
literature, such as accountability, corporate governance, and internal control.
By starting from context dependency, the thesis operates in the domain of
studies treating risk management in situ (e.g., Arena et al., 2010, 2011; Mikes,
2009, 2011; Wahlström, 2006, 2009a, 2009b). Having these studies in my
mind eased the task of understanding how banks, like any other
organizations, may have different intentions when designing and
implementing controls, even though standards and banking laws are
expected to affect all banks in a similar way. Moreover, it facilitated my
understanding that situations may require organizations to put into practice

87
procedures and processes aligned with the particular risks they face, to help
them make the leap of faith to deal appropriately with those risks.
The third step in addressing the theoretical implications is accepting that
bank employees’ perceptions and intentions fulfil several critical functions in
bank risk management, such as design choices regarding the use of the Basel
Accords. At the same time, bank employees can adapt to sudden changes in
their environmental context while maintaining existing practices, for
example, by embracing “traditions” (cf. Ouchi, 1980) in the financial and
capital markets. Bank employees also respond to changes in their
environmental context, such as new regulations, by creating new practices,
for example, the use of risk-based measures (cf. Jorion, 2009). Bank
employees are therefore important objects of study (cf. Jönsson, 2014).
Keeping an eye on theories embracing managerial subjectivity (e.g., Simons,
1995) could release researchers from the “straightjacket” of theory, which
expects rational decision making by individuals and makes rigid demands
of objectivity in operationalization. Neglecting practitioners’ interpretations
seems to be equally hazardous for academics seeking clues in the darkness
that appeared in the aftermath of the GFC. This large-scale banking crisis
brought massive changes to the banking and many other industries both
directly and indirectly (The Crisis Inquiry Report, 2011). Moreover, bank
employees were held accountable for bank risk management failures
(Stiglitz, 2010).
In this thesis, attempts were made to narrow the distance between theory
and practice, for example, by extensively relying on interviewee accounts
and statements.

5.4.2 Practical implications

The practical implications of this thesis primarily concern regulators and
bank employees, hinting at the one-sided blaming of bank employees for
lack of professionalism (cf. Engwall, 1995) and of regulators for enacting
standards lacking relevance (cf. Power, 2009). Such blame-mongering may
be completely unproductive.

Regulators
The first practical implication is that regulators could benefit from
understanding managerial intentions in using standards in practice. The
background of this suggestion is that regulators may observe that banks
display higher or lower aspirations regarding the use of standards (cf. Gray
& Hamilton, 2006). In certain ways, standards such as the Basel Accords

88
represent suggestions for an ideal paradigm. They are expected to promote
institutional compatibility and latitude for censuring in case of
noncompliance. Given the severe experiences of the GFC and the fact that
regulators have the task of controlling banks, regulators have worked
towards enforcing the standards, for example, by introducing Basel III and
Basel IV (European Commission, 2016, Jackson, 2016). Part of the
background of such enforcement action is the regulators’ dissatisfaction with
banks for not being perfectly attuned to standards:

One of the causes of the deep financial crisis witnessed since mid-2007 has
been the deviation from well-established principles in the management of risk
(in particular credit risk) by financial institutions. (González-Páramo, 2010)

Given the present findings, it is important that regulators understand

how the intentions of top bank managers may motivate “deviation from
well-established principles” (González-Páramo, 2010) and varying
“aspiration levels” (Gray & Hamilton, 2006).
Another practical implication is that regulators could benefit from a
better developed understanding of the effects of reregulation. This thesis has
built an understanding of bank employees’ perceptions of Basel II associated
advances and challenges. Such an understanding could refine regulators’
sensitivity before they impose additional banking laws or strengthen the
enforcement of existing laws (e.g., Basel IV). The potential benefit would be
to avoid stimulating bank employees’ aversion to credit risk, as this could
lead to reduced bank lending to companies (cf. Öhman et al., 2015). The
matter of reduced bank lending to companies as a direct consequence of
regulatory burden has been remarked on in the press (e.g., Engzell-Larsson,
2016; O’Connor, Cadman, & Goff, 2014). As noted, bank lending is critical
for supplying companies with necessary financing for their operations and
investments. In the end, bank lending facilitates employment and the
economic growth of countries (Levine, 1997; Nabi & Suliman, 2009).

Bank employees
Turning to bank employees, the first practical implication is that standards
have both positive and negative managerial consequences for bank
employees at the strategic level. In terms of positive managerial
consequences, the Basel Accords could support top bank managers’ various
control purposes, such as cost minimization and performance optimization
(cf. Arena & Arnaboldi, 2014). Risk-based measures detail the efficient use of
money with respect to capital adequacy requirements. Achieving these
control purposes entails making novel design choices between existing and

89
new controls, with consideration for how these controls fit business
strategies (Bedford & Malmi, 2015). To an extent, these “design choices”
(Simons, 1995) could improve top bank managers’ ability to process
advanced information for interactive decision making. Also, top bank
management could expect improved control, since operational-level
employees can be better controlled through more sophisticated management
control systems than those developed in the 1980s and 1990s, such as total
quality management and activity-based costing (Soin & Scheytt, 2008). Such
an understanding should be useful for practitioners considering how to
“get … down into the nitty-gritty of risk management” (R. Smith & Lucchetti,
2007).
In terms of negative managerial consequences, standards represent
increased costs for bank operations. There are costs related to acquiring and
developing sophisticated quantification resources (e.g., information systems:
cf. Flores et al., 2006), as well as to organizing new professional authorities
such as CROs (cf. M. Hall et al., 2015) and risk experts (cf. Mikes, 2011). Risk
experts are expected to operate at a higher skill level than other management
accountants previously employed in banks (Soin & Scheytt, 2008) and, like
all employees with specific skill sets, they cost money. Moreover, there are
costs related to recruiting personnel at the operational level and to
investments in human capital (Bruns et al., 2008) relating to acquiring new
tools and using information in new ways. Moreover, acquiring these
resources and hiring such personnel are associated with practical challenges,
which may cause inefficiencies and increased costs (Mikes, 2011).
Another practical implication is that high aspirations to implement
standards do not necessarily prevent banking defaults. After the GFC,
studies (e.g., Aebi et al., 2012) concluded that adopting risk management
with high aspiration levels could sufficiently strengthen banks so that they
could financially outperform in a banking crisis. The present findings
concerning Bank A during the GFC, however, call into question such a
conclusion. Despite its high aspirations, Bank A was forced to request
additional capital injections from its shareholders to avoid default. As
confirmed by Goodhart (2011), there are examples of other European banks
in similar situations: Northern Rock and Anglo-Irish Bank complied with the
Basel Accords, but nevertheless had to be rescued.
The final practical implication is that operational-level bank employees
require managerial attention. Having bank loan officers conducting their
assessments according to procedural-based lending removes power from
these operational-level employees, transferring it to top bank managers. In
Clegg’s (1989) terms, the way top bank managers influence risk experts and

90
bank loan officers to perform certain acts would exemplify several forms of
power. Bank management must be aware that, for bank loan officers, the
Basel Accords entail standardized task performance and an emphasis on
hard information and objectivity (Hansson, 2010). Early on, Beck (1992)
warned that ever more stringent standards assume that objectivity excludes
subjective values, such as insight. An emphasis on objectivity in decision
making as a result of the Basel Accords means that bank loan officers’
human capital has limited influence on assessments of SME loan
applications, a fact observed before (e.g., Bruns et al., 2008). Yet it is the
understanding of this thesis that human capital can be a critical resource
when dealing with opaque potential borrowers (e.g., SMEs), for example,
through soft information and/or intuition. Standards should allow latitude
for bank loan officers’ human capital to develop. An undesirable
consequence of such standards is that they discourage bank loan officers
from exercising their human capital, instead encouraging their passivity.
According to F. Wilson et al. (2007), banks already attract passive men and
women who tend to avoid relationships with borrowers. The consequences
of reinforced standards in a period of reregulation could become material;
for example, passive bank loan officers could become overcautious in bank
lending.

5.4.3 Methodological implications

The methodological basis of management control research is open to various
research methods (Modell, 2009). Accordingly, I exploited a variety of
methods and techniques for examining bank risk management from
different vantage points. In particular, I used methods and techniques rarely
used in the banking context, permitting me to gain a holistic overview of
bank risk management. Given that every research method and technique is
limited to some extent, I argue that interviews were a useful research
instrument when approaching top managers and high-ranking officers, i.e.,
bank employees at the strategic level, and that the RGT helped in gaining
access to a large number of bank employees at the operational level.
Interviews are not uncommon in studies of inter-organizational
relationships (e.g., van der Meer-Kooistra & Vosselman, 2006). However, in
studies of interbank lending, researchers have extensively relied on
transaction data (quantitative data) from the financial and capital markets,
rarely using in-person inquiries (cf. Gabrieli, 2009; Persson & Blåvarg, 2003).
Interbank lending researchers (e.g. Bowman, 2009) may have experienced
difficulties obtaining research access to bank employees at the strategic level.

91
As noted, research into interbank lending has found that trust plays a role in
selecting counterparties and monitoring their performance. The interviews
provided a natural point of entry for accessing practice-relevant descriptions
of the organization of the banks’ funding-operations, of the function of
network relationships in the financial and capital markets, and of the
processes underlying decision making in a large-scale banking crisis.
In general, although the interviewees were subject to professional secrecy
and were therefore restricted when talking about specific cases, the chosen
interview technique was nonetheless found to be appropriate. The semi-
structured interview questions allowed the interviewees to speak relatively
freely about the topic under study. My impression is that the bank
employees at the strategic level talked openly about their intentions and
perceptions regarding bank risk management, details rarely addressed in
public documents.
In the operational-level studies, the RGT offered a comprehensive
instrument (cf. Fransella et al., 2004) with which to understand the bank loan
officers cognitions in assessing SME loan applications. Although there are
some exceptions (e.g., F. Wilson et al., 2007), to my knowledge no previous
study in the banking context has used the RGT to its full potential at the
aggregated level. The RGT has, however, been used in large-scale
investigations of auditors (Öhman et al., 2006) and property appraisers
(Bellman & Öhman, 2016). Such studies of professionals in related industries
justify the use of the RGT even when examining bank loan officers.
The use of the RGT permits investigation of homogeneity and complexity
in bank loan officers’ cognition with less risk of receiving distorted
responses than when using interviews or surveys. The results of using the
RGT to examine a large number of bank loan officers clearly indicate
homogeneity in loan assessments via procedural-based lending no matter
the type of loan concerned. These results would be difficult to obtain using
other research methods.

5.5 Suggestions for future research

The following suggestions for future research, which are related to the
limitations of this thesis, address contemporary trends in the banking
industry and the insights gained here.
One noteworthy limitation is that the discussions and conclusions of the
strategic- and operational-level studies are not linked. Future studies could
try to provide a more complete understanding of bank risk management by
conducting linked studies at strategic and operational levels in banks, with

92
the objective of problematizing “fit” in terms of internal consistency between
these organizational levels (cf. Bedford & Malmi, 2015; Drazin & Van de
Ven, 1985; Noy & Ellis, 2003).
Another limitation is that this thesis focuses heavily on bank employees.
It has not explored other parties that may constrain or otherwise influence
bank risk management. Future researchers could take into account other
parties’ interests. For example, the deregulations of the 1980s created
preconditions for conflicts of interest between shareholders and debtholders,
as shareholders forced banks to take on more risk to the debtholders’
disadvantage (Bliss & Flannery, 2002; Flannery, 1998). A second example is
that after the GFC, regulators (e.g., Bernanke, 2008) claimed that conflict of
interest between shareholders and regulators could have been a reason for
the banking crisis. The argument was that the dominance of the
shareholders’ value-maximization logic induced banks to take excessive
risks (Park & Peristiani, 2007).
In the post-GFC era, the pendulum is swinging towards more regulation
(Mikes, 2011; Petitjean, 2013; Power, 2009). In this era, one cannot have
missed the emergence of additional regulatory and supervisory bodies. The
objective of these additional institutions is to control banks and hold them
accountable through harmonized regulations as well as supervision, and to
avoid situations of regulatory arbitrage. Analytically, these additional
institutions operate at the macro level (cf. Demirgüç-Kunt & Serven, 2010;
Goodhart, 2011). However, research is lacking into the opportunities for and
constraints on bank risk management arising from conflicts of interest
between new and established institutions (e.g., central banks and national
supervisory authorities), with the latter operating mainly at the micro level.
In the UK, such conflicts of interest have been managed through the Bank of
England’s incorporation of prudential supervision. In Sweden, such conflicts
of interest have recently prompted debate on the alternative organization of
bank supervision (Popoyan, Napoletano, & Roventini, 2016). In sum, by
focusing on other parties’ interests, future researchers could examine bank
risk management in view of the notion that interests, at times, may be on a
collision course that affects the extent to which banks succeed in dealing
with risk.
Related to contemporary trends in the banking industry, future studies
could examine two initiatives and their impact on practice. First, among the
numerous initiatives seeking acceptance after the GFC, the most surprising
one seems to be the risk culture regulation (Ashby, Palermo, & Power, 2013;
O’Connor et al., 2014). This regulation targets large and systemically
important banks and acknowledges the shortcomings of measurements and

93
quantifications. Second, another initiative is Basel IV, which is still in the
conceptual stage (European Commission, 2016). In the future, bank risk
management will surely evolve towards new frontiers and include
numerous other initiatives placing demands on research. According to
Pelzer (2009), our future hinges on risk management. At the same time, bank
risk management standards require reliability and acceptance (Power, 2010).
During the course of this thesis, I achieved an insight into a central
concern in the debate, on which I suggest future researchers could reflect.
After the GFC, influential persons representing governments (e.g., Alan
Greenspan 49 ) argued that the ways in which banks pursue self-interest
should be questioned. However, banks seem to have the capacity to distance
themselves from self-interest to some extent, as observed in the paper
focusing on interbank lending (paper 3). Possibly, because of the importance
of capital acquisition arrangements via the interbank market, banks do
appreciate the primacy of collective interest over self-interest.
Finally, this thesis has studied bank risk management, which I believe is
an important policy issue that seems to be continuously relevant, according
to recent consulting reports (e.g., Härle et al., 2016). Future research could
try to understand bank risk management in “normal” situations and in other
research conditions and contextual settings than those considered here.

49
Alan Greenspan is the former treasury secretary in the USA (Greenspan, 2008).

94
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Appendix A
Interview themes & questions, papers 1 and 2
Background questions
• What is your role and its purpose?
• Could you describe your education?
• Could you describe your professional background?

Risk and risk management

• What is the background of the Basel Accords implementation?
• Describe the bank’s risk control organization.
• How is credit risk control organized?
• What risks in relation to credit risk are measured?
• How is credit risk measured?
• What credit risk models are used?
• What factors, variables, and criteria are considered in the models?
• How is the risk reporting done?
• How is risk control represented at the board/top-management level?

Control systems
• How is the commercial lending operation controlled?
• Give examples of particular systems that are used at the management
level and operational level, respectively.
• Describe the process for originating commercial credit.
• How and why are risk-based measures considered in this process?
• How are commercial credit portfolios monitored?
• How and why are risk-based measures considered in portfolio
monitoring?
• How and why do the top management and board use risk-based
measures?

Employees
• What is the background of staff recruited for commercial loan
operations and for the risk control organization, respectively?
• How long have these employees stayed in their positions?
• What is the culture of the bank and how is it communicated to the
employees?

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Appendix B
Follow-up interview themes & questions, paper 2
Background questions
• What is your role and its purpose?
• Could you describe your education?
• Could you describe your professional background?

Questions pertaining exclusively to chief risk officers

1. Could you describe the bank’s risk control organization?
o Organization
o Risk types
o Risk measurement
o Organization
o Liaison with senior management
o Reporting
2. Could you describe how the risk control organization has developed
post crisis?
o Personnel
o Technologies
o Responsibilities
o Risk measurement
o Organizationally
o Administratively
3. How do you create appropriate control systems at different
organizational levels?
4. What is the single largest challenge facing risk control organization?
5. How is the bank different from its competitors?

Questions pertaining exclusively to non-bank interviewees

1. Could you describe how the banks’ risk control organization has
developed post crisis?
o Personnel
o Technologies
o Responsibilities
o Risk measurement

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 o Organizationally
o Administratively

2. Could you describe how the different banks approach risk control?
3. What is the single largest challenge facing risk control organizations?

Is there anything you wish to add?

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Appendix C
Interview themes & questions, paper 3
Background questions
• What is your role and its purpose?
• Could you describe your education?
• Could you describe your professional background?

Counterparty identification
• Could you describe how you identify a creditworthy bank?
• Could you describe the information you collect about a counterparty?
• Could you describe how important the rating agency’s ratings are?
• Could you describe how you collected information during the crisis?
• Could you describe the sources you use to collect information about a
counterparty?
• Could you describe how you evaluate a counterparty bank?
• Could you describe how your function’s approach differs from those
of the other functions?
• Could you describe how your approach differs from those of your
colleagues?

Risk management during the crisis

• Could you describe the sources you used to collect information during
the crisis?
• Could you describe how you evaluate information other than
accounting information?
• Could you describe how your function worked during the crisis?
• Could you describe how you worked during the crisis?

Governmental guarantees
• Could you describe the government’s and the central bank’s actions
during the crisis?
• What was particular about these actions?

Is there anything you wish to add?

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Appendix D
List of Interviews, papers 1–3

Job title of the interviewees

Time of the start and finish

Number of interviewers
Date of interviews
Interview count

Organisation
1 Director of Commercial Credits 2010-06-09 14:00-14:46 Bank A Two
2 Head of Audit and Compliance 2010-06-09 16:30-17:30 Bank A Two
3 Head of Treasury 2010-06-10 10:30-11:33 Bank A Two
4 Vice Director of Treasury 2010-06-10 14:00-14:56 Bank A Two
Vice-President of Credit and
5 2010-06-11 11:00-12:04 Bank A
Head of Group Risk Control Two
6 Manager of Basel II Project 2010-06-14 11:00-12:00 Bank A Two
7 Credit Risk Control Analyst 2010-06-14 14:00-15:45 Bank A Two
8 Manager of Credit Risk Control 2010-06-15 10:00-10:57 Bank A Two
Head of Enterprise Risk
9 2010-06-15 13:00-13:47 Bank A
Management Two
Manager of Credit Card Risk
10 2010-06-15 16:00-16:54 Bank A
Control Two
11 Manager of Portfolio Analyses 2010-06-16 10:00:10:59 Bank A Two
12 Head of Unit, Market risk 2010-06-16 15:00-16:15 The Swedish FSA* Two
Vice-President of Public
13 2010-08-16 13:00-14:10 Bank B
Relations Two
Vice President of International
14 2010-08-18 16:00-17:40 Bank B
Business Two
15 Manager, Credit Risk Control 2010-08-16 09:30-10:31 Bank B Two
16 Manager of Market Risk 2010-08-17 11:00-12:03 Bank A Two
Risk Control Programme
17 2010-08-17 09:30-10:23 Bank B
Manager Two
18 Head of Treasury 2010-08-17 13:00-13:53 Bank B Two
19 Vice Head of Treasury 2010-08-17 13:00-13:53 Bank B Two
20 Client Manager Bank Accounts 2010-08-18 14:00-15:15 Bank B Two
21 Vice-President of Finance 2010-08-18 09:00-10:40 Bank B Two
Vice-President, Head of
22 2010-08-19 14:00-15:18 Bank B
Regional Office 1 Two
Manager of Credit Analyst
23 2010-08-19 16:00-17:03 Bank A
Team Two
24 Accounting Analyst 2010-08-19 09:30-10:30 Bank B Two
25 Vice-President of Credits 2010-08-20 13:00-14:28 Bank B Two
26 Head of Audit 2010-08-20 09:30-10:53 Bank B Two
27 Senior Board Advisor 2010-08-23 11:00-12:25 Bank A Two

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Appendix D - continues
List of Interviews, papers 1–3

Job title of the interviewees

Time of the start and finish

Number of interviewers
Date of interview
Interview count

Organisation
28 Manager of Insurance Division 2010-08-23 13:30-14:45 Bank A Two
29 Head of Unit, Credit risk 2010-08-23 15:00-16:00 The Swedish FSA* Two
30 Analyst 2010-08-24 15:00-16:07 The Swedish FSA* Two
31 Head of Group Risk Control 2010-08-24 13:00-14:25 Bank B Two
32 Head of Market Risk 2010-08-24 09:30-10:34 Bank B Two
Retired Vice-President of
33 2010-08-25 13:30-15:13 Bank B
Finance Two
34 Consultant 2010-08-26 09:30-10:26 Consulting Firm A Two
35 Liquidity Risk Specialist 2010-08-26 13:00-13:57 Bank B Two
36 Head of Operational Risk 2010-08-26 15:00-16:43 Bank B Two
37 Head of Market Risk Control 2010-08-27 14:00-15:16 Bank B Two
38 Trader 2010-08-27 09:30-10:21 Bank B Two
Vice-President, Head of
39 2010-08-30 15:00-16:00 Bank B
Regional Office 2 One
Credit rating
40 Bank Analyst 2010-11-07 14:00-15:06
agency One
Debt Investor Relationship
41 2010-11-11 09:30-10:22 Bank B
Manager 1 One
Debt Investor Relationship
42 2010-11-11 09:30-10:22 Bank B
Manager 2 One
The national
43 General Counsel 2011-06-28 14:00-14:58 treasury
department Two
The Swedish
44 Senior Economist 2012-03-26 10:30-11:32 Bankers’
Association One
45 Partner 2014-05-07 12:45-13:32 Consulting Firm B One
46 Chief Risk Officer 2014-05-09 16:15-17:11 Bank A One
The Swedish
47 Senior Economist 2014-05-12 10:00-10:57
central bank One
48 Chief Risk Officer 2014-05-12 16:00-16:58 Bank B One
49 Associate Consultant 2014-05-13 13:00-13:52 Consulting Firm C One
50 Head of Strategic Risks 2014-05-13 15:00-15:39 Bank D One
51 Senior Risk Expert 2014-06-12 10:00-11:00 The Swedish FSA* One
52 Head of Banking Supervision 2014-06-12 14:00-14:39 The Swedish FSA* One

*The Swedish FSA equals the Swedish Financial Supervisory Authority.

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Appendix E
The grid form.

A.

B.

C.

D.

E.

F.

G.

H.

I.

J.

K.

L.

M.
Elements

The bank´s share of investment

Business concept

Company documents

The business relationship to the client

Presented financial conditions

The bank´s earning opportunities

Industry classification

The management and the board

Anticipated financial conditions

Market conditions

The personal relationship to the client

The bank´s risk of losing money

Collaterals

Constructs

1. Requires little (1) – much (7) time

to assess
2. Small (1) – large (7) influence of
the Basel Accords
3. Predominantly objective (1) –
subjective (7) assessments
4. Small (1) – large (7) impact on first
time loans
5. Predominantly quantitative (1) –
qualitative (7) information
6. Small (1) – large (7) aid from
support systems
7. Easy (1) – difficult (7) to assess

8. Small (1) – large (7) impact on

recurring application for defensive
additional loans
9. Requires future – orientated
assessments to a small (1) – great
extent (7)

10. Small (1) – large (7) influence of

the lending strategy of the bank
11. Requires little (1) – much (7)
second opinions
12. Small (1) – large (7) impact on
recurring application for offensive
expansion loan
13. Requires little (1) – much (7)
intuition

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Appendix F
Background questions, papers 4 and 5
Name:
Title:
• Are you part of the decision committee?
• How many years have you worked on lending?
• How many years have you been employed by the bank?
• How many years have you worked on lending in other banks?
• How many years have you been employed by other banks?
• Could you specify your level of education?
• Could you specify your year of birth?
• Could you specify your branch office location?
• Do you wish to obtain a copy of the research results?
• Please provide your phone number.

Complementary open-ended questions, papers 4 and 5

1. What do you think could be assessed less extensively without risking
negative effects on the outcome of the assessments (considering
profitability as well as risk)?
2. What do you think could be assessed more extensively in order to
improve the outcome of the assessments (considering profitability as
well as risk)?
3. Do you think the competition between banks is affecting your
opportunities to negotiate lending conditions? Please cite examples.
4. Do you think the client strategy is affecting your opportunities to
negotiate lending conditions? Please cite examples.
5. Do you think your loan assessments have changed over the last few
years? If this is the case, in what way?
6. Is there anything you would like to add?

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Appendix G
Focus group interview questions, paper 4
1. Could you describe how the two identified dimensions of the
cognitive maps correspond to practice?
2. Could you describe how the risk of losing money relates to the
opportunity to profit? How would you want these two to relate?
3. Could you describe how you work on different loan types?
4. Could you describe how you view and consider the bank’s policies?
5. Could you describe how important business relationships and
personal relationships are? Also, how do the two tie into the total
client strategy?
6. Could you describe the importance of intuition?
7. Could you describe what potential differences could exist between the
different groups of loan officers and the different individuals in these
groups? What are the possible reasons for these potential differences
at the group level and individual level, respectively?
8. Is there anything you wish to add?

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The papers

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