Risk Appetite Statement

A risk appetite statement is the written expression of how much risk, and of what kinds, a bank, insurer, payment firm or other organisation is prepared to take to achieve its strategy. It is approved by the board of directors and turns the general idea of risk appetite into specific commitments. Most statements combine qualitative principles, such as having no appetite for knowingly breaching sanctions, with quantitative measures, such as minimum capital ratios, liquidity buffers, earnings volatility, credit concentration limits and operational risk loss thresholds. Each measure is cascaded into limits for business lines and monitored through regular reporting, with breaches escalated to senior management and the board. The Financial Stability Board's 2013 principles for an effective risk appetite framework are widely used as a reference by supervisors. Also see risk tolerance and risk management.