literature review on risk management in banks

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• Published: 03 September 2022

A literature review of risk, regulation, and profitability of banks using a scientometric study

• Shailesh Rastogi 1 ,
• Arpita Sharma 1 ,
• Geetanjali Pinto 2 &
• Venkata Mrudula Bhimavarapu   ORCID: orcid.org/0000-0002-9757-1904 1 , 3  

Future Business Journal volume  8 , Article number:  28 ( 2022 ) Cite this article

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This study presents a systematic literature review of regulation, profitability, and risk in the banking industry and explores the relationship between them. It proposes a policy initiative using a model that offers guidelines to establish the right mix among these variables. This is a systematic literature review study. Firstly, the necessary data are extracted using the relevant keywords from the Scopus database. The initial search results are then narrowed down, and the refined results are stored in a file. This file is finally used for data analysis. Data analysis is done using scientometrics tools, such as Table2net and Sciences cape software, and Gephi to conduct network, citation analysis, and page rank analysis. Additionally, content analysis of the relevant literature is done to construct a theoretical framework. The study identifies the prominent authors, keywords, and journals that researchers can use to understand the publication pattern in banking and the link between bank regulation, performance, and risk. It also finds that concentration banking, market power, large banks, and less competition significantly affect banks’ financial stability, profitability, and risk. Ownership structure and its impact on the performance of banks need to be investigated but have been inadequately explored in this study. This is an organized literature review exploring the relationship between regulation and bank performance. The limitations of the regulations and the importance of concentration banking are part of the findings.

Introduction

Globally, banks are under extreme pressure to enhance their performance and risk management. The financial industry still recalls the ignoble 2008 World Financial Crisis (WFC) as the worst economic disaster after the Great Depression of 1929. The regulatory mechanism before 2008 (mainly Basel II) was strongly criticized for its failure to address banks’ risks [ 47 , 87 ]. Thus, it is essential to investigate the regulation of banks [ 75 ]. This study systematically reviews the relevant literature on banks’ performance and risk management and proposes a probable solution.

Issues of performance and risk management of banks

Banks have always been hailed as engines of economic growth and have been the axis of the development of financial systems [ 70 , 85 ]. A vital parameter of a bank’s financial health is the volume of its non-performing assets (NPAs) on its balance sheet. NPAs are advances that delay in payment of interest or principal beyond a few quarters [ 108 , 118 ]. According to Ghosh [ 51 ], NPAs negatively affect the liquidity and profitability of banks, thus affecting credit growth and leading to financial instability in the economy. Hence, healthy banks translate into a healthy economy.

Despite regulations, such as high capital buffers and liquidity ratio requirements, during the second decade of the twenty-first century, the Indian banking sector still witnessed a substantial increase in NPAs. A recent report by the Indian central bank indicates that the gross NPA ratio reached an all-time peak of 11% in March 2018 and 12.2% in March 2019 [ 49 ]. Basel II has been criticized for several reasons [ 98 ]. Schwerter [ 116 ] and Pakravan [ 98 ] highlighted the systemic risk and gaps in Basel II, which could not address the systemic risk of WFC 2008. Basel III was designed to close the gaps in Basel II. However, Schwerter [ 116 ] criticized Basel III and suggested that more focus should have been on active risk management practices to avoid any impending financial crisis. Basel III was proposed to solve these issues, but it could not [ 3 , 116 ]. Samitas and Polyzos [ 113 ] found that Basel III had made banking challenging since it had reduced liquidity and failed to shield the contagion effect. Therefore, exploring some solutions to establish the right balance between regulation, performance, and risk management of banks is vital.

Keeley [ 67 ] introduced the idea of a balance among banks’ profitability, regulation, and NPA (risk-taking). This study presents the balancing act of profitability, regulation, and NPA (risk-taking) of banks as a probable solution to the issues of bank performance and risk management and calls it a triad . Figure  1 illustrates the concept of a triad. Several authors have discussed the triad in parts [ 32 , 96 , 110 , 112 ]. Triad was empirically tested in different countries by Agoraki et al. [ 1 ]. Though the idea of a triad is quite old, it is relevant in the current scenario. The spirit of the triad strongly and collectively admonishes the Basel Accord and exhibits new and exhaustive measures to take up and solve the issue of performance and risk management in banks [ 16 , 98 ]. The 2008 WFC may have caused an imbalance among profitability, regulation, and risk-taking of banks [ 57 ]. Less regulation , more competition (less profitability ), and incentive to take the risk were the cornerstones of the 2008 WFC [ 56 ]. Achieving a balance among the three elements of a triad is a real challenge for banks’ performance and risk management, which this study addresses.

Triad of Profitability, regulation, and NPA (risk-taking). Note The triad [ 131 ] of profitability, regulation, and NPA (risk-taking) is shown in Fig.  1

Triki et al. [ 130 ] revealed that a bank’s performance is a trade-off between the elements of the triad. Reduction in competition increases the profitability of banks. However, in the long run, reduction in competition leads to either the success or failure of banks. Flexible but well-expressed regulation and less competition add value to a bank’s performance. The current review paper is an attempt to explore the literature on this triad of bank performance, regulation, and risk management. This paper has the following objectives:

To systematically explore the existing literature on the triad: performance, regulation, and risk management of banks; and

To propose a model for effective bank performance and risk management of banks.

Literature is replete with discussion across the world on the triad. However, there is a lack of acceptance of the triad as a solution to the woes of bank performance and risk management. Therefore, the findings of the current papers significantly contribute to this regard. This paper collates all the previous studies on the triad systematically and presents a curated view to facilitate the policy makers and stakeholders to make more informed decisions on the issue of bank performance and risk management. This paper also contributes significantly by proposing a DBS (differential banking system) model to solve the problem of banks (Fig.  7 ). This paper examines studies worldwide and therefore ensures the wider applicability of its findings. Applicability of the DBS model is not only limited to one nation but can also be implemented worldwide. To the best of the authors’ knowledge, this is the first study to systematically evaluate the publication pattern in banking using a blend of scientometrics analysis tools, network analysis tools, and content analysis to understand the link between bank regulation, performance, and risk.

This paper is divided into five sections. “ Data and research methods ” section discusses the research methodology used for the study. The data analysis for this study is presented in two parts. “ Bibliometric and network analysis ” section presents the results obtained using bibliometric and network analysis tools, followed by “ Content Analysis ” section, which presents the content analysis of the selected literature. “ Discussion of the findings ” section discusses the results and explains the study’s conclusion, followed by limitations and scope for further research.

Data and research methods

A literature review is a systematic, reproducible, and explicit way of identifying, evaluating, and synthesizing relevant research produced and published by researchers [ 50 , 100 ]. Analyzing existing literature helps researchers generate new themes and ideas to justify the contribution made to literature. The knowledge obtained through evidence-based research also improves decision-making leading to better practical implementation in the real corporate world [ 100 , 129 ].

As Kumar et al. [ 77 , 78 ] and Rowley and Slack [ 111 ] recommended conducting an SLR, this study also employs a three-step approach to understand the publication pattern in the banking area and establish a link between bank performance, regulation, and risk.

Determining the appropriate keywords for exploring the data

Many databases such as Google Scholar, Web of Science, and Scopus are available to extract the relevant data. The quality of a publication is associated with listing a journal in a database. Scopus is a quality database as it has a wider coverage of data [ 100 , 137 ]. Hence, this study uses the Scopus database to extract the relevant data.

For conducting an SLR, there is a need to determine the most appropriate keywords to be used in the database search engine [ 26 ]. Since this study seeks to explore a link between regulation, performance, and risk management of banks, the keywords used were “risk,” “regulation,” “profitability,” “bank,” and “banking.”

Initial search results and limiting criteria

Using the keywords identified in step 1, the search for relevant literature was conducted in December 2020 in the Scopus database. This resulted in the search of 4525 documents from inception till December 2020. Further, we limited our search to include “article” publications only and included subject areas: “Economics, Econometrics and Finance,” “Business, Management and Accounting,” and “Social sciences” only. This resulted in a final search result of 3457 articles. These results were stored in a.csv file which is then used as an input to conduct the SLR.

Data analysis tools and techniques

This study uses bibliometric and network analysis tools to understand the publication pattern in the area of research [ 13 , 48 , 100 , 122 , 129 , 134 ]. Some sub-analyses of network analysis are keyword word, author, citation, and page rank analysis. Author analysis explains the author’s contribution to literature or research collaboration, national and international [ 59 , 99 ]. Citation analysis focuses on many researchers’ most cited research articles [ 100 , 102 , 131 ].

The.csv file consists of all bibliometric data for 3457 articles. Gephi and other scientometrics tools, such as Table2net and ScienceScape software, were used for the network analysis. This.csv file is directly used as an input for this software to obtain network diagrams for better data visualization [ 77 ]. To ensure the study’s quality, the articles with 50 or more citations (216 in number) are selected for content analysis [ 53 , 102 ]. The contents of these 216 articles are analyzed to develop a conceptual model of banks’ triad of risk, regulation, and profitability. Figure  2 explains the data retrieval process for SLR.

Data retrieval process for SLR. Note Stepwise SLR process and corresponding results obtained

Bibliometric and network analysis

Figure  3 [ 58 ] depicts the total number of studies that have been published on “risk,” “regulation,” “profitability,” “bank,” and “banking.” Figure  3 also depicts the pattern of the quality of the publications from the beginning till 2020. It undoubtedly shows an increasing trend in the number of articles published in the area of the triad: “risk” regulation” and “profitability.” Moreover, out of the 3457 articles published in the said area, 2098 were published recently in the last five years and contribute to 61% of total publications in this area.

Articles published from 1976 till 2020 . Note The graph shows the number of documents published from 1976 till 2020 obtained from the Scopus database

Source of publications

A total of 160 journals have contributed to the publication of 3457 articles extracted from Scopus on the triad of risk, regulation, and profitability. Table 1 shows the top 10 sources of the publications based on the citation measure. Table 1 considers two sets of data. One data set is the universe of 3457 articles, and another is the set of 216 articles used for content analysis along with their corresponding citations. The global citations are considered for the study from the Scopus dataset, and the local citations are considered for the articles in the nodes [ 53 , 135 ]. The top 10 journals with 50 or more citations resulted in 96 articles. This is almost 45% of the literature used for content analysis ( n  = 216). Table 1 also shows that the Journal of Banking and Finance is the most prominent in terms of the number of publications and citations. It has 46 articles published, which is about 21% of the literature used for content analysis. Table 1 also shows these core journals’ SCImago Journal Rank indicator and H index. SCImago Journal Rank indicator reflects the impact and prestige of the Journal. This indicator is calculated as the previous three years’ weighted average of the number of citations in the Journal since the year that the article was published. The h index is the number of articles (h) published in a journal and received at least h. The number explains the scientific impact and the scientific productivity of the Journal. Table 1 also explains the time span of the journals covering articles in the area of the triad of risk, regulation, and profitability [ 7 ].

Figure  4 depicts the network analysis, where the connections between the authors and source title (journals) are made. The network has 674 nodes and 911 edges. The network between the author and Journal is classified into 36 modularities. Sections of the graph with dense connections indicate high modularity. A modularity algorithm is a design that measures how strong the divided networks are grouped into modules; this means how well the nodes are connected through a denser route relative to other networks.

Network analysis between authors and journals. Note A node size explains the more linked authors to a journal

The size of the nodes is based on the rank of the degree. The degree explains the number of connections or edges linked to a node. In the current graph, a node represents the name of the Journal and authors; they are connected through the edges. Therefore, the more the authors are associated with the Journal, the higher the degree. The algorithm used for the layout is Yifan Hu’s.

Many authors are associated with the Journal of Banking and Finance, Journal of Accounting and Economics, Journal of Financial Economics, Journal of Financial Services Research, and Journal of Business Ethics. Therefore, they are the most relevant journals on banks’ risk, regulation, and profitability.

Location and affiliation analysis

Affiliation analysis helps to identify the top contributing countries and universities. Figure  5 shows the countries across the globe where articles have been published in the triad. The size of the circle in the map indicates the number of articles published in that country. Table 2 provides the details of the top contributing organizations.

Location of articles published on Triad of profitability, regulation, and risk

Figure  5 shows that the most significant number of articles is published in the USA, followed by the UK. Malaysia and China have also contributed many articles in this area. Table 2 shows that the top contributing universities are also from Malaysia, the UK, and the USA.

Key author analysis

Table 3 shows the number of articles written by the authors out of the 3457 articles. The table also shows the top 10 authors of bank risk, regulation, and profitability.

Fadzlan Sufian, affiliated with the Universiti Islam Malaysia, has the maximum number, with 33 articles. Philip Molyneux and M. Kabir Hassan are from the University of Sharjah and the University of New Orleans, respectively; they contributed significantly, with 20 and 18 articles, respectively.

However, when the quality of the article is selected based on 50 or more citations, Fadzlan Sufian has only 3 articles with more than 50 citations. At the same time, Philip Molyneux and Allen Berger contributed more quality articles, with 8 and 11 articles, respectively.

Keyword analysis

Table 4 shows the keyword analysis (times they appeared in the articles). The top 10 keywords are listed in Table 4 . Banking and banks appeared 324 and 194 times, respectively, which forms the scope of this study, covering articles from the beginning till 2020. The keyword analysis helps to determine the factors affecting banks, such as profitability (244), efficiency (129), performance (107, corporate governance (153), risk (90), and regulation (89).

The keywords also show that efficiency through data envelopment analysis is a determinant of the performance of banks. The other significant determinants that appeared as keywords are credit risk (73), competition (70), financial stability (69), ownership structure (57), capital (56), corporate social responsibility (56), liquidity (46), diversification (45), sustainability (44), credit provision (41), economic growth (41), capital structure (39), microfinance (39), Basel III (37), non-performing assets (37), cost efficiency (30), lending behavior (30), interest rate (29), mergers and acquisition (28), capital adequacy (26), developing countries (23), net interest margin (23), board of directors (21), disclosure (21), leverage (21), productivity (20), innovation (18), firm size (16), and firm value (16).

Keyword analysis also shows the theories of banking and their determinants. Some of the theories are agency theory (23), information asymmetry (21), moral hazard (17), and market efficiency (16), which can be used by researchers when building a theory. The analysis also helps to determine the methodology that was used in the published articles; some of them are data envelopment analysis (89), which measures technical efficiency, panel data analysis (61), DEA (32), Z scores (27), regression analysis (23), stochastic frontier analysis (20), event study (15), and literature review (15). The count for literature review is only 15, which confirms that very few studies have conducted an SLR on bank risk, regulation, and profitability.

Citation analysis

One of the parameters used in judging the quality of the article is its “citation.” Table 5 shows the top 10 published articles with the highest number of citations. Ding and Cronin [ 44 ] indicated that the popularity of an article depends on the number of times it has been cited.

Tahamtan et al. [ 126 ] explained that the journal’s quality also affects its published articles’ citations. A quality journal will have a high impact factor and, therefore, more citations. The citation analysis helps researchers to identify seminal articles. The title of an article with 5900 citations is “A survey of corporate governance.”

Page Rank analysis

Goyal and Kumar [ 53 ] explain that the citation analysis indicates the ‘popularity’ and ‘prestige’ of the published research article. Apart from the citation analysis, one more analysis is essential: Page rank analysis. PageRank is given by Page et al. [ 97 ]. The impact of an article can be measured with one indicator called PageRank [ 135 ]. Page rank analysis indicates how many times an article is cited by other highly cited articles. The method helps analyze the web pages, which get the priority during any search done on google. The analysis helps in understanding the citation networks. Equation  1 explains the page rank (PR) of a published paper, N refers to the number of articles.

T 1,… T n indicates the paper, which refers paper P . C ( Ti ) indicates the number of citations. The damping factor is denoted by a “ d ” which varies in the range of 0 and 1. The page rank of all the papers is equal to 1. Table 6 shows the top papers based on page rank. Tables 5 and 6 together show a contrast in the top ranked articles based on citations and page rank, respectively. Only one article “A survey of corporate governance” falls under the prestigious articles based on the page rank.

Content analysis

Content Analysis is a research technique for conducting qualitative and quantitative analyses [ 124 ]. The content analysis is a helpful technique that provides the required information in classifying the articles depending on their nature (empirical or conceptual) [ 76 ]. By adopting the content analysis method [ 53 , 102 ], the selected articles are examined to determine their content. The classification of available content from the selected set of sample articles that are categorized under different subheads. The themes identified in the relationship between banking regulation, risk, and profitability are as follows.

Regulation and profitability of banks

The performance indicators of the banking industry have always been a topic of interest to researchers and practitioners. This area of research has assumed a special interest after the 2008 WFC [ 25 , 51 , 86 , 114 , 127 , 132 ]. According to research, the causes of poor performance and risk management are lousy banking practices, ineffective monitoring, inadequate supervision, and weak regulatory mechanisms [ 94 ]. Increased competition, deregulation, and complex financial instruments have made banks, including Indian banks, more vulnerable to risks [ 18 , 93 , 119 , 123 ]. Hence, it is essential to investigate the present regulatory machinery for the performance of banks.

There are two schools of thought on regulation and its possible impact on profitability. The first asserts that regulation does not affect profitability. The second asserts that regulation adds significant value to banks’ profitability and other performance indicators. This supports the concept that Delis et al. [ 41 ] advocated that the capital adequacy requirement and supervisory power do not affect productivity or profitability unless there is a financial crisis. Laeven and Majnoni [ 81 ] insisted that provision for loan loss should be part of capital requirements. This will significantly improve active risk management practices and ensure banks’ profitability.

Lee and Hsieh [ 83 ] proposed ambiguous findings that do not support either school of thought. According to Nguyen and Nghiem [ 95 ], while regulation is beneficial, it has a negative impact on bank profitability. As a result, when proposing regulations, it is critical to consider bank performance and risk management. According to Erfani and Vasigh [ 46 ], Islamic banks maintained their efficiency between 2006 and 2013, while most commercial banks lost, furthermore claimed that the financial crisis had no significant impact on Islamic bank profitability.

Regulation and NPA (risk-taking of banks)

The regulatory mechanism of banks in any country must address the following issues: capital adequacy ratio, prudent provisioning, concentration banking, the ownership structure of banks, market discipline, regulatory devices, presence of foreign capital, bank competition, official supervisory power, independence of supervisory bodies, private monitoring, and NPAs [ 25 ].

Kanoujiya et al. [ 64 ] revealed through empirical evidence that Indian bank regulations lack a proper understanding of what banks require and propose reforming and transforming regulation in Indian banks so that responsive governance and regulation can occur to make banks safer, supported by Rastogi et al. [ 105 ]. The positive impact of regulation on NPAs is widely discussed in the literature. [ 94 ] argue that regulation has multiple effects on banks, including reducing NPAs. The influence is more powerful if the country’s banking system is fragile. Regulation, particularly capital regulation, is extremely effective in reducing risk-taking in banks [ 103 ].

Rastogi and Kanoujiya [ 106 ] discovered evidence that disclosure regulations do not affect the profitability of Indian banks, supported by Karyani et al. [ 65 ] for the banks located in Asia. Furthermore, Rastogi and Kanoujiya [ 106 ] explain that disclosure is a difficult task as a regulatory requirement. It is less sustainable due to the nature of the imposed regulations in banks and may thus be perceived as a burden and may be overcome by realizing the benefits associated with disclosure regulation [ 31 , 54 , 101 ]. Zheng et al. [ 138 ] empirically discovered that regulation has no impact on the banks’ profitability in Bangladesh.

Governments enforce banking regulations to achieve a stable and efficient financial system [ 20 , 94 ]. The existing literature is inconclusive on the effects of regulatory compliance on banks’ risks or the reduction of NPAs [ 10 , 11 ]. Boudriga et al. [ 25 ] concluded that the regulatory mechanism plays an insignificant role in reducing NPAs. This is especially true in weak institutions, which are susceptible to corruption. Gonzalez [ 52 ] reported that firm regulations have a positive relationship with banks’ risk-taking, increasing the probability of NPAs. However, Boudriga et al. [ 25 ], Samitas and Polyzos [ 113 ], and Allen et al. [ 3 ] strongly oppose the use of regulation as a tool to reduce banks’ risk-taking.

Kwan and Laderman [ 79 ] proposed three levels in regulating banks, which are lax, liberal, and strict. The liberal regulatory framework leads to more diversification in banks. By contrast, the strict regulatory framework forces the banks to take inappropriate risks to compensate for the loss of business; this is a global problem [ 73 ].

Capital regulation reduces banks’ risk-taking [ 103 , 110 ]. Capital regulation leads to cost escalation, but the benefits outweigh the cost [ 103 ]. The trade-off is worth striking. Altman Z score is used to predict banks’ bankruptcy, and it found that the regulation increased the Altman’s Z-score [ 4 , 46 , 63 , 68 , 72 , 120 ]. Jin et al. [ 62 ] report a negative relationship between regulation and banks’ risk-taking. Capital requirements empowered regulators, and competition significantly reduced banks’ risk-taking [ 1 , 122 ]. Capital regulation has a limited impact on banks’ risk-taking [ 90 , 103 ].

Maji and De [ 90 ] suggested that human capital is more effective in managing banks’ credit risks. Besanko and Kanatas [ 21 ] highlighted that regulation on capital requirements might not mitigate risks in all scenarios, especially when recapitalization has been enforced. Klomp and De Haan [ 72 ] proposed that capital requirements and supervision substantially reduce banks’ risks.

A third-party audit may impart more legitimacy to the banking system [ 23 ]. The absence of third-party intervention is conspicuous, and this may raise a doubt about the reliability and effectiveness of the impact of regulation on bank’s risk-taking.

NPA (risk-taking) in banks and profitability

Profitability affects NPAs, and NPAs, in turn, affect profitability. According to the bad management hypothesis [ 17 ], higher profits would negatively affect NPAs. By contrast, higher profits may lead management to resort to a liberal credit policy (high earnings), which may eventually lead to higher NPAs [ 104 ].

Balasubramaniam [ 8 ] demonstrated that NPA has double negative effects on banks. NPAs increase stressed assets, reducing banks’ productive assets [ 92 , 117 , 136 ]. This phenomenon is relatively underexplored and therefore renders itself for future research.

Triad and the performance of banks

Regulation and triad.

Regulations and their impact on banks have been a matter of debate for a long time. Barth et al. [ 12 ] demonstrated that countries with a central bank as the sole regulatory body are prone to high NPAs. Although countries with multiple regulatory bodies have high liquidity risks, they have low capital requirements [ 40 ]. Barth et al. [ 12 ] supported the following steps to rationalize the existing regulatory mechanism on banks: (1) mandatory information [ 22 ], (2) empowered management of banks, and (3) increased incentive for private agents to exert corporate control. They show that profitability has an inverse relationship with banks’ risk-taking [ 114 ]. Therefore, standard regulatory practices, such as capital requirements, are not beneficial. However, small domestic banks benefit from capital restrictions.

DeYoung and Jang [ 43 ] showed that Basel III-based policies of liquidity convergence ratio (LCR) and net stable funding ratio (NSFR) are not fully executed across the globe, including the US. Dahir et al. [ 39 ] found that a decrease in liquidity and funding increases banks’ risk-taking, making banks vulnerable and reducing stability. Therefore, any regulation on liquidity risk is more likely to create problems for banks.

Concentration banking and triad

Kiran and Jones [ 71 ] asserted that large banks are marginally affected by NPAs, whereas small banks are significantly affected by high NPAs. They added a new dimension to NPAs and their impact on profitability: concentration banking or banks’ market power. Market power leads to less cost and more profitability, which can easily counter the adverse impact of NPAs on profitability [ 6 , 15 ].

The connection between the huge volume of research on the performance of banks and competition is the underlying concept of market power. Competition reduces market power, whereas concentration banking increases market power [ 25 ]. Concentration banking reduces competition, increases market power, rationalizes the banks’ risk-taking, and ensures profitability.

Tabak et al. [ 125 ] advocated that market power incentivizes banks to become risk-averse, leading to lower costs and high profits. They explained that an increase in market power reduces the risk-taking requirement of banks. Reducing banks’ risks due to market power significantly increases when capital regulation is executed objectively. Ariss [ 6 ] suggested that increased market power decreases competition, and thus, NPAs reduce, leading to increased banks’ stability.

Competition, the performance of banks, and triad

Boyd and De Nicolo [ 27 ] supported that competition and concentration banking are inversely related, whereas competition increases risk, and concentration banking decreases risk. A mere shift toward concentration banking can lead to risk rationalization. This finding has significant policy implications. Risk reduction can also be achieved through stringent regulations. Bolt and Tieman [ 24 ] explained that stringent regulation coupled with intense competition does more harm than good, especially concerning banks’ risk-taking.

Market deregulation, as well as intensifying competition, would reduce the market power of large banks. Thus, the entire banking system might take inappropriate and irrational risks [ 112 ]. Maji and Hazarika [ 91 ] added more confusion to the existing policy by proposing that, often, there is no relationship between capital regulation and banks’ risk-taking. However, some cases have reported a positive relationship. This implies that banks’ risk-taking is neutral to regulation or leads to increased risk. Furthermore, Maji and Hazarika [ 91 ] revealed that competition reduces banks’ risk-taking, contrary to popular belief.

Claessens and Laeven [ 36 ] posited that concentration banking influences competition. However, this competition exists only within the restricted circle of banks, which are part of concentration banking. Kasman and Kasman [ 66 ] found that low concentration banking increases banks’ stability. However, they were silent on the impact of low concentration banking on banks’ risk-taking. Baselga-Pascual et al. [ 14 ] endorsed the earlier findings that concentration banking reduces banks’ risk-taking.

Concentration banking and competition are inversely related because of the inherent design of concentration banking. Market power increases when only a few large banks are operating; thus, reduced competition is an obvious outcome. Barra and Zotti [ 9 ] supported the idea that market power, coupled with competition between the given players, injects financial stability into banks. Market power and concentration banking affect each other. Therefore, concentration banking with a moderate level of regulation, instead of indiscriminate regulation, would serve the purpose better. Baselga-Pascual et al. [ 14 ] also showed that concentration banking addresses banks’ risk-taking.

Schaeck et al. [ 115 ], in a landmark study, presented that concentration banking and competition reduce banks’ risk-taking. However, they did not address the relationship between concentration banking and competition, which are usually inversely related. This could be a subject for future research. Research on the relationship between concentration banking and competition is scant, identified as a research gap (“ Research Implications of the study ” section).

Transparency, corporate governance, and triad

One of the big problems with NPAs is the lack of transparency in both the regulatory bodies and banks [ 25 ]. Boudriga et al. [ 25 ] preferred to view NPAs as a governance issue and thus, recommended viewing it from a governance perspective. Ahmad and Ariff [ 2 ] concluded that regulatory capital and top-management quality determine banks’ credit risk. Furthermore, they asserted that credit risk in emerging economies is higher than that of developed economies.

Bad management practices and moral vulnerabilities are the key determinants of insolvency risks of Indian banks [ 95 ]. Banks are an integral part of the economy and engines of social growth. Therefore, banks enjoy liberal insolvency protection in India, especially public sector banks, which is a critical issue. Such a benevolent insolvency cover encourages a bank to be indifferent to its capital requirements. This indifference takes its toll on insolvency risk and profit efficiency. Insolvency protection makes the bank operationally inefficient and complacent.

Foreign equity and corporate governance practices help manage the adverse impact of banks’ risk-taking to ensure the profitability and stability of banks [ 33 , 34 ]. Eastburn and Sharland [ 45 ] advocated that sound management and a risk management system that can anticipate any impending risk are essential. A pragmatic risk mechanism should replace the existing conceptual risk management system.

Lo [ 87 ] found and advocated that the existing legislation and regulations are outdated. He insisted on a new perspective and asserted that giving equal importance to behavioral aspects and the rational expectations of customers of banks is vital. Buston [ 29 ] critiqued the balance sheet risk management practices prevailing globally. He proposed active risk management practices that provided risk protection measures to contain banks’ liquidity and solvency risks.

Klomp and De Haan [ 72 ] championed the cause of giving more autonomy to central banks of countries to provide stability in the banking system. Louzis et al. [ 88 ] showed that macroeconomic variables and the quality of bank management determine banks’ level of NPAs. Regulatory authorities are striving hard to make regulatory frameworks more structured and stringent. However, the recent increase in loan defaults (NPAs), scams, frauds, and cyber-attacks raise concerns about the effectiveness [ 19 ] of the existing banking regulations in India as well as globally.

Discussion of the findings

The findings of this study are based on the bibliometric and content analysis of the sample published articles.

The bibliometric study concludes that there is a growing demand for researchers and good quality research

The keyword analysis suggests that risk regulation, competition, profitability, and performance are key elements in understanding the banking system. The main authors, keywords, and journals are grouped in a Sankey diagram in Fig.  6 . Researchers can use the following information to understand the publication pattern on banking and its determinants.

Sankey Diagram of main authors, keywords, and journals. Note Authors contribution using scientometrics tools

Research Implications of the study

The study also concludes that a balance among the three components of triad is the solution to the challenges of banks worldwide, including India. We propose the following recommendations and implications for banks:

This study found that “the lesser the better,” that is, less regulation enhances the performance and risk management of banks. However, less regulation does not imply the absence of regulation. Less regulation means the following:

Flexible but full enforcement of the regulations

Customization, instead of a one-size-fits-all regulatory system rooted in a nation’s indigenous requirements, is needed. Basel or generic regulation can never achieve what a customized compliance system can.

A third-party audit, which is above the country's central bank, should be mandatory, and this would ensure that all three aspects of audit (policy formulation, execution, and audit) are handled by different entities.

Competition

This study asserts that the existing literature is replete with poor performance and risk management due to excessive competition. Banking is an industry of a different genre, and it would be unfair to compare it with the fast-moving consumer goods (FMCG) or telecommunication industry, where competition injects efficiency into the system, leading to customer empowerment and satisfaction. By contrast, competition is a deterrent to the basic tenets of safe banking. Concentration banking is more effective in handling the multi-pronged balance between the elements of the triad. Concentration banking reduces competition to lower and manageable levels, reduces banks’ risk-taking, and enhances profitability.

No incentive to take risks

It is found that unless banks’ risk-taking is discouraged, the problem of high NPA (risk-taking) cannot be addressed. Concentration banking is a disincentive to risk-taking and can be a game-changer in handling banks’ performance and risk management.

Research on the risk and performance of banks reveals that the existing regulatory and policy arrangement is not a sustainable proposition, especially for a country where half of the people are unbanked [ 37 ]. Further, the triad presented by Keeley [ 67 ] is a formidable real challenge to bankers. The balance among profitability, risk-taking, and regulation is very subtle and becomes harder to strike, just as the banks globally have tried hard to achieve it. A pragmatic intervention is needed; hence, this study proposes a change in the banking structure by having two types of banks functioning simultaneously to solve the problems of risk and performance of banks. The proposed two-tier banking system explained in Fig.  7 can be a great solution. This arrangement will help achieve the much-needed balance among the elements of triad as presented by Keeley [ 67 ].

Conceptual Framework. Note Fig.  7 describes the conceptual framework of the study

The first set of banks could be conventional in terms of their structure and should primarily be large-sized. The number of such banks should be moderate. There is a logic in having only a few such banks to restrict competition; thus, reasonable market power could be assigned to them [ 55 ]. However, a reduction in competition cannot be over-assumed, and banks cannot become complacent. As customary, lending would be the main source of revenue and income for these banks (fund based activities) [ 82 ]. The proposed two-tier system can be successful only when regulation especially for risk is objectively executed [ 29 ]. The second set of banks could be smaller in size and more in number. Since they are more in number, they would encounter intense competition for survival and for generating more business. Small is beautiful, and thus, this set of banks would be more agile and adaptable and consequently more efficient and profitable. The main source of revenue for this set of banks would not be loans and advances. However, non-funding and non-interest-bearing activities would be the major revenue source. Unlike their traditional and large-sized counterparts, since these banks are smaller in size, they are less likely to face risk-taking and NPAs [ 74 ].

Sarmiento and Galán [ 114 ] presented the concerns of large and small banks and their relative ability and appetite for risk-taking. High risk could threaten the existence of small-sized banks; thus, they need robust risk shielding. Small size makes them prone to failure, and they cannot convert their risk into profitability. However, large banks benefit from their size and are thus less vulnerable and can convert risk into profitable opportunities.

India has experimented with this Differential Banking System (DBS) (two-tier system) only at the policy planning level. The execution is impending, and it highly depends on the political will, which does not appear to be strong now. The current agenda behind the DBS model is not to ensure the long-term sustainability of banks. However, it is currently being directed to support the agenda of financial inclusion by extending the formal credit system to the unbanked masses [ 107 ]. A shift in goal is needed to employ the DBS as a strategic decision, but not merely a tool for financial inclusion. Thus, the proposed two-tier banking system (DBS) can solve the issue of profitability through proper regulation and less risk-taking.

The findings of Triki et al. [ 130 ] support the proposed DBS model, in this study. Triki et al. [ 130 ] advocated that different component of regulations affect banks based on their size, risk-taking, and concentration banking (or market power). Large size, more concentration banking with high market power, and high risk-taking coupled with stringent regulation make the most efficient banks in African countries. Sharifi et al. [ 119 ] confirmed that size advantage offers better risk management to large banks than small banks. The banks should modify and work according to the economic environment in the country [ 69 ], and therefore, the proposed model could help in solving the current economic problems.

This is a fact that DBS is running across the world, including in India [ 60 ] and other countries [ 133 ]. India experimented with DBS in the form of not only regional rural banks (RRBs) but payments banks [ 109 ] and small finance banks as well [ 61 ]. However, the purpose of all the existing DBS models, whether RRBs [ 60 ], payment banks, or small finance banks, is financial inclusion, not bank performance and risk management. Hence, they are unable to sustain and are failing because their model is only social instead of a much-needed dual business-cum-social model. The two-tier model of DBS proposed in the current paper can help serve the dual purpose. It may not only be able to ensure bank performance and risk management but also serve the purpose of inclusive growth of the economy.

Conclusion of the study

The study’s conclusions have some significant ramifications. This study can assist researchers in determining their study plan on the current topic by using a scientific approach. Citation analysis has aided in the objective identification of essential papers and scholars. More collaboration between authors from various countries/universities may help countries/universities better understand risk regulation, competition, profitability, and performance, which are critical elements in understanding the banking system. The regulatory mechanism in place prior to 2008 failed to address the risk associated with banks [ 47 , 87 ]. There arises a necessity and motivates authors to investigate the current topic. The present study systematically explores the existing literature on banks’ triad: performance, regulation, and risk management and proposes a probable solution.

To conclude the bibliometric results obtained from the current study, from the number of articles published from 1976 to 2020, it is evident that most of the articles were published from the year 2010, and the highest number of articles were published in the last five years, i.e., is from 2015. The authors discovered that researchers evaluate articles based on the scope of critical journals within the subject area based on the detailed review. Most risk, regulation, and profitability articles are published in peer-reviewed journals like; “Journal of Banking and Finance,” “Journal of Accounting and Economics,” and “Journal of Financial Economics.” The rest of the journals are presented in Table 1 . From the affiliation statistics, it is clear that most of the research conducted was affiliated with developed countries such as Malaysia, the USA, and the UK. The researchers perform content analysis and Citation analysis to access the type of content where the research on the current field of knowledge is focused, and citation analysis helps the academicians understand the highest cited articles that have more impact in the current research area.

Practical implications of the study

The current study is unique in that it is the first to systematically evaluate the publication pattern in banking using a combination of scientometrics analysis tools, network analysis tools, and content analysis to understand the relationship between bank regulation, performance, and risk. The study’s practical implications are that analyzing existing literature helps researchers generate new themes and ideas to justify their contribution to literature. Evidence-based research knowledge also improves decision-making, resulting in better practical implementation in the real corporate world [ 100 , 129 ].

Limitations and scope for future research

The current study only considers a single database Scopus to conduct the study, and this is one of the limitations of the study spanning around the multiple databases can provide diverse results. The proposed DBS model is a conceptual framework that requires empirical testing, which is a limitation of this study. As a result, empirical testing of the proposed DBS model could be a future research topic.

Availability of data and materials

SCOPUS database.

Abbreviations

Systematic literature review

World Financial Crisis

Non-performing assets

Differential banking system

SCImago Journal Rank Indicator

Liquidity convergence ratio

Net stable funding ratio

Fast moving consumer goods

Regional rural banks

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‘SR’ performed Abstract, Introduction, and Data methodology sections and was the major contributor; ‘AS’ performed Bibliometric and Network analysis and conceptual framework; ‘GP’ performed citation analysis and discussion section; ‘VMB’ collated data from the database and concluded the article. All authors read and approved the final manuscript.

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Rastogi, S., Sharma, A., Pinto, G. et al. A literature review of risk, regulation, and profitability of banks using a scientometric study. Futur Bus J 8 , 28 (2022). https://doi.org/10.1186/s43093-022-00146-4

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• Bank performance
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Federal Reserve System

Community Banking Connections

A supervision and regulation publication.

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Risk Is Our Business: A Supervisory Perspective on the Dynamics of Risk and Risk Management by William Mark, Lead Examiner, Supervision and Regulation, Federal Reserve Bank of Chicago

Economist Peter Bernstein once remarked, “The word ‘risk’ derives from the early Italian risicare , which means ‘to dare.’ In this sense, risk is a choice rather than a fate. The actions we dare to take, which depend on how free we are to make choices, are what the story of risk is all about.” 1 Warren Buffett’s brutally frank take on the matter is that “risk comes from not knowing what you’re doing.” 2 No matter how you look at it, taking and managing risks — as well as balancing those risks against the rewards — is fundamental to the business of banking.

A bank’s risk appetite describes the level and types of risk that the bank’s board of directors and senior management are willing to assume in the bank’s business strategy. An effective business strategy aims to generate a profit without incurring undue risks or losses to the bank, consistent with safe and sound banking principles.

Risk identification and risk management are distinct yet interdependent activities that have significant bearing on the success of a bank. With this understanding, it is prudent for a bank’s board of directors to establish a “tone from the top” for managing risks by determining and conveying the organization’s risk appetite and profile. A discerning risk assessment process, together with an effective risk management program, helps position a bank to accomplish the vision of its leadership team in a safe and sound manner. However, some bankers still perceive risk management as a cost center instead of as a loss preventer or risk mitigant.

Failure to establish and maintain a management structure that effectively identifies, measures, monitors, and controls the risks inherent in a bank’s products and services has long been considered unsafe and unsound. 3 This article explores the dynamics of risk and risk management and explains how examiners assess a bank’s risk position to determine the adequacy of its risk management.

Supervisory Guidance

The Federal Reserve System has always placed significant supervisory emphasis on the effectiveness of an institution’s risk management, evaluating four key elements: (1) board and senior management oversight; (2) policies, procedures, and limits; (3) risk monitoring and management information systems (MIS); and (4) internal controls. 4

In practice, an institution’s business activities present various combinations, concentrations, and interrelationships of these risks depending on the nature and scope of the activity. 5 Supervision and Regulation (SR) letter 16-11, “Supervisory Guidance for Assessing Risk Management at Supervised Institutions with Total Consolidated Assets Less than $100 Billion,” provides the principles for a bank’s risk assessment process and defines key types of risks. 6 The SR letter applies to community and regional banking organizations and identifies six risk categories: 7

• Credit risk typically stems from earning assets such as loans and investments; it represents the risk that a borrower or counterparty will fail to perform on an obligation.
• Market risk results from adverse movements in market rates or prices, such as interest rates, foreign exchange rates, commodity prices, or equity prices.
• Liquidity risk arises when a financial institution is unable to meet its obligations because of an inability to liquidate assets or obtain adequate funding (i.e., funding liquidity risk) or because it cannot easily unwind or offset specific exposures without significantly lowering market prices on account of market disruptions or inadequate market depth (i.e., market liquidity risk).
• Operational risk results from inadequate or failed internal processes, people, and systems or from external events. Operational risk can stem from a broad range of activities, typically those involving nonearning assets such as fixed assets and other real estate, as well as deposit and teller operations, information technology, human resources, and vendor management.
• Compliance risk is the risk of regulatory sanctions, fines, penalties, or losses arising from the failure to comply with laws, rules, regulations, or other supervisory requirements applicable to a financial institution, including formal and informal supervisory enforcement actions.
• Legal risk arises when activities, actions, or situations could potentially expose the institution to unenforceable contracts, lawsuits, legal sanctions, or adverse judgments that would disrupt or otherwise negatively affect its operations or financial condition.

Certainly, there are other risk stripes or categories outside of the risks listed in SR letter 16-11. For instance, reputational risk can arise when a bank receives negative publicity regarding its poor business practices (i.e., operational risk), makes a public disclosure that it failed to comply with a law (i.e., compliance risk), or publicly divulges that it is a party to litigation (i.e., legal risk). 8 Furthermore, other regulators view institutional risk categories through different but comparable lenses. For example, the Office of the Comptroller of the Currency (OCC) identifies nine risk categories for supervisory purposes: credit, interest rate, liquidity, price, foreign exchange, transaction, compliance, strategic, and reputation. 9 As with the risk categories designated by the Federal Reserve, the OCC’s risk categories are not mutually exclusive, so any bank product or service may expose a bank to multiple risks. When translating to the Federal Reserve’s risk categories:

• credit, liquidity, and compliance risks correspond to the similarly designated categories;
• interest rate, price, and foreign exchange risks typically fall under the larger umbrella of market risk;
• transaction risk can be considered an aspect of operational risk; and
• strategic and reputational risks apply across all risk categories.

A Holistic View of Risk and Integrated Supervision

“Specialty” risk areas, such as information technology (IT), Bank Secrecy Act/anti-money laundering (BSA/AML) compliance, and fiduciary/trust services, can significantly contribute to the overall risk profile of an organization. These specialty activities influence multiple risk areas, and examiners typically review and assess these areas during a bank’s safety and soundness examination. The areas of consumer compliance and the Community Reinvestment Act, while not typically reviewed as part of a safety and soundness examination, are subject to standalone supervisory assessment and ratings and factor into the risk discussion; they primarily exhibit compliance risk but also have some legal and operational risk considerations. 10

Depending on the nature and breadth of the identified deficiencies, weaknesses in managing the risks associated with a bank’s specialty areas could compromise the safety and soundness of the bank and, therefore, have a sizable effect on the overall supervisory assessment of a bank’s risk management program. For example, with the increasing reliance on technology in the banking sector, particularly in the high-profile area of cyber risk, the board of directors and management team are expected to effectively identify, monitor, and control the operational risks primarily associated with IT. 11 Failure to comply with BSA/AML requirements would raise a bank’s operational, compliance, and legal risks.

Fiduciary activities also involve operational, compliance, and legal risks; however, the relative significance of these activities does not directly correlate to the value of assets under management. As these are off-balance sheet assets, the related risks do not typically translate on a dollar-for-dollar basis. Rather, risk exposure often depends on the types of trusts and underlying assets, the nature of governing documents, the extent of fiduciary discretionary powers, and the effectiveness of related risk management efforts. Poorly managed trust activities can result in lost revenues and lawsuits, which can negatively affect a bank’s earnings.

New Products and Emerging Risk Areas

With each new product or activity that a bank initiates, it is incumbent on its board of directors and senior management to understand the types of risks involved, determine whether the new products or services align with the bank’s risk appetite, and ensure that the underlying risks are properly identified and managed. In the case of risks emerging from external factors, the board and senior management should understand how these risks could impact the bank.

One example of an emerging, or perpetually evolving, external risk is cybersecurity, particularly through ransomware attacks and other endpoint breaches. 12 From a risk assessment perspective, these emerging external risks are typically centered in the operational, compliance, and legal risk areas but often manifest in varying degrees. The uncertain and often high-profile nature of newer or emerging risks naturally necessitates board and senior management vigilance to ensure that the impact of these external factors is ascertained and addressed in a timely fashion. However, a bank should consider developments in the regulatory landscape that often accompany such risks.

The Federal Reserve’s Approach to Assessing Risk

While bankers and banking supervisors have aligned interests regarding the safe and sound condition of a bank, these parties often have differing perspectives. Bankers generally have a vertical perspective with intimate knowledge and understanding of the bank’s specific risk profile and related risk management practices; however, there is some subjectivity. Meanwhile, banking supervisors tend to have a horizontal perspective concerned with how risk and risk management are addressed across similar banks. Federal Reserve examiners employ the principles discussed in SR letter 16-11 and use a risk matrix (see Table) to systematically assess the risks and relative effectiveness of the risk management practices at a supervised bank. 13 Examiners organize their assessment into four areas:

• Inherent risk represents the assessment of the risk level given the nature, complexity, and volume of an activity.
• Adequacy of risk management characterizes the effectiveness of a bank’s risk management processes relative to its degree of inherent risk.
• Composite risk represents the residual risk level after the application of risk management.
• Trend indicates the likely change to the bank’s risk profile over the subsequent 12 months.

Assessment of Inherent Risk

In the risk matrix (Table), examiners identify three levels of risk for each risk type at the bank: 14

• High risk describes cases in which the activity is significant or the positions are large in relation to the institution’s resources or peer group, there are a substantial number of transactions, or the nature of the activity is inherently more complex than normal. Thus, the activity could potentially result in a significant and harmful loss to the organization.
• Moderate risk describes cases in which positions are average in relation to the institution’s resources or peer group, the volume of transactions is average, and the activity is typical or traditional. Thus, while the activity could potentially result in a loss to the organization, the loss could be absorbed in the normal course of business.
• Low risk describes cases in which the volume, size, or nature of the activity is such that, even if there are internal control weaknesses, the risk of loss is remote or would have little negative impact on the overall financial condition of the bank.

There are various factors that examiners consider when rating a community bank’s inherent risk as high, moderate, or low. As expected, high risk levels require more attention from the board of directors and senior management and result in a greater focus by examiners. Certain banking activities, when combined with elevated exposure or activity levels, would usually warrant a high inherent risk level at a community bank. The determination of elevated inherent credit, market, and liquidity risks is often tied to quantitative measures, while elevated inherent operational, compliance, and legal risks are typically associated with more qualitative factors. One common quantitative metric typically used as a default starting point to suggest elevated inherent risk at a bank is the concentration metric rule of thumb in which an exposure or activity exceeds 25 percent of tier 1 capital plus the loan loss reserve. 15

For example, from a credit perspective, high inherent risk could include significant concentrations in commercial real estate loans as well as notable levels of subprime lending vehicles and uncommon investments, such as unrated municipal securities. From a funding or liquidity perspective, high risk could arise from a concentration in brokered deposits, heavy reliance on net noncore/volatile funding sources, elevated balance sheet optionality, or insufficient deposit segmentation. Furthermore, an examiner may designate a bank as having high inherent market risk if the bank experiences extreme earnings changes from relatively conservative basis point changes in model stress tests.

Certain qualitative factors could suggest high inherent operational, compliance, and legal risk at a bank. For example, a bank may have high operational risk stemming from active merger and acquisition strategies, inadequate computer systems, or high incidences of fraud. Further, inherently high compliance risk can result from prolonged noncompliance with formal and informal supervisory actions, 16 chronic BSA/AML issues, or an inability to comply with the applicable laws related to consumer protection. Finally, inherently high legal risk could manifest from pronounced fiduciary exposures with discretionary powers, complex trust structures, or conflicts of interest arising from the dual role of fiduciary and bank officer.

Bankers can mitigate high levels of inherent risk by establishing strong risk management practices or controls before engaging in an activity. For example, very conservative underwriting parameters for higher-risk credit facilities can reduce the bank’s inherent credit risk. Moreover, the inherent liquidity risks associated with some brokered deposits can be mitigated through bank participation in the Certificate of Deposit Account Registry Service. In addition, a bank could temper its operational risk with a robust and flexible due diligence process for vetting prospective vendors and service providers.

Table: Risk Matrix

Composite Risk and Risk Trending

In addition to inherent risk, the risk matrix provides a structured tool for examiners to assess a bank’s composite or residual risk considering the strength of the bank’s risk management. As with inherent risk levels, composite risk levels are assessed using the same three assessment designations and related definitions (Table). The assessment criteria are designed to highlight the relative effectiveness of a bank’s risk management systems and processes.

The trend in the various risk categories highlights the potential changes to a bank’s risk profile that the bank’s board of directors and senior management should consider when refining the bank’s risk management protocols. With the risk trend, examiners assess the cumulative impact of prospective changes to each risk category’s profile for the subsequent 12-month time horizon based on factors such as a bank’s strategic plans (e.g., expansionary activity, new products), economic conditions, and the notable effectiveness or deficiencies in the bank’s risk management efforts. Projections of increasing or decreasing risk would reasonably have a more than nominal or incremental potential effect on the referenced risk.

“The essence of risk management,” according to Peter Bernstein, “lies in maximizing the areas where we have some control over the outcome while minimizing the areas where we have absolutely no control over the outcome.” 17 An accurate risk assessment lays the groundwork for a bank to build and maintain an effective risk management program. This article highlights how Federal Reserve examiners execute a methodical and consistent approach to evaluating a community bank’s risk exposure. From an examiner’s perspective, banks with effective risk management practices have measures in place to control or mitigate the bank’s inherent risk profile. As an effective risk management program is informed by past experiences and future strategic business goals, community bankers should expect examiners to focus on assessing a bank’s preparedness to manage risks now and in the future.

• 1 See Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk , 1996, available at https://archive.org/details/againstgodsremar00pete_0 .
• 2 See Zack Friedman, “Here Are 10 Genius Quotes from Warren Buffett,” Forbes , October 4, 2018, available at www.forbes.com/sites/zackfriedman/2018/10/04/warren-buffett-best-quotes/?sh=6d20eea14261 .
• 3 See 12 C.F.R. part 208, Appendix D-1, available at www.federalreserve.gov/supervisionreg/reghcg.htm .
• 4 See Supervision and Regulation (SR) letter 16-11, “Supervisory Guidance for Assessing Risk Management at Supervised Institutions with Total Consolidated Assets Less than $100 Billion,” available at www.federalreserve.gov/supervisionreg/srletters/sr1611.htm .
• 5 See SR letter 16-11.
• 6 For additional information, see the Federal Reserve’s Commercial Bank Examination Manual, available at www.federalreserve.gov/publications/supervision_cbem.htm , and Bank Holding Company Supervision Manual , available at www.federalreserve.gov/publications/supervision_bhc.htm , as well as the relevant Federal Financial Institutions Examination Council examination manuals.
• 7 See SR letter 16-11.
• 8 See SR letter 95-51, “Rating the Adequacy of Risk Management Processes and Internal Controls at State Member Banks and Bank Holding Companies,” available at www.federalreserve.gov/boarddocs/srletters/1995/sr9551.htm .
• 9 See the Comptroller's Handbook , “Community Bank Supervision,” September 2019, available at www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/community-bank-supervision/index-community-bank-supervision.html .
• 10 See Consumer Affairs (CA) letter 13-19, “Community Bank Risk-Focused Consumer Compliance Supervision Program,” available at www.federalreserve.gov/supervisionreg/caletters/caltr1319.htm .
• 11 See SR letter 16-11.
• 12 See Ahmed Hussain, William Mark, and Anthony Toins, “Endpoint Security: On the Frontline of Cyber Risk,” Community Banking Connections , Third Issue 2021, available at www.cbcfrs.org/Articles/2021/I3/endpoint-security-on-the-frontline-of-cyber-risk .
• 13 See section 1001.1 of the Commercial Bank Examination Manual , available at www.federalreserve.gov/publications/files/cbem.pdf .
• 14 See section 1001.1 of the Commercial Bank Examination Manual .
• 15 See SR letter 20-8, “Joint Statement on Adjustment to the Calculation for Credit Concentration Ratios Used in the Supervisory Approach,” available at www.federalreserve.gov/supervisionreg/srletters/SR2008.htm .
• 16 Informal supervisory actions include supervisory letters, board resolutions, and memoranda of understanding (MOU). Formal supervisory actions include cease and desist orders and written agreements.
• 17 See Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk .

Also In This Release

• A Deposit Deep Dive: Liquidity Risk Management for Uninsured and Nontraditional Deposits
• Thoughtful Strategic Planning in Periods of Economic Uncertainty

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• Published: 14 May 2024

Fake News: a conceptual model for risk management

• João Varela da Costa   ORCID: orcid.org/0009-0009-4534-7132 1 , 2 ,
• Silvia Bogea Gomes 1 , 2 &
• Miguel Mira da Silva 1 , 2  

Humanities and Social Sciences Communications volume  11 , Article number:  625 ( 2024 ) Cite this article

Metrics details

• Business and management
• Information systems and information technology

This article proposes a model based on a systematic literature review (SLR) that investigates the intersection of Fake News, Risk, and Risk Management. Employing Design Science Research as the primary methodology, it introduces a conceptual model to mitigate Fake News-related risks in specific communities. The model uses ArchiMate to depict a community as an organisational entity, exemplifying its practicality through a Fake News instance from the Central European Digital Media Observatory. The research undergoes rigorous evaluation using the Bunge-Wand-Weber Model, ensuring its consistency and value to the scientific community. This evaluation formalises the proposed conceptual model, offering a structured framework systematically mapping Fake News concepts to mitigate associated risks and disinformation. This study contributes to the Fake News management discourse, providing a practical risk management tool to counter the phenomenon.

Introduction

The swift rise of digitalisation has offered a transformative view to organisations and new technological advancements. It has also transformed our relationship with information and how we use and perceive technology to communicate. It is essential to remember that digitalisation has brought new and different digital risks to our communities and organisations. A common digital threat associated with digitisation is disinformation, which is the spread of false or misleading information online through the use of Fake News (FN). FN can be a medium for the dissemination of disinformation. It is crucial to understand that disinformation threatens the integrity of information, manipulating public opinion and the decision-making process Christodoulou & Iordanou ( 2021 ). Moreover, its false and misleading nature presents a genuine threat to societies, with its impact going beyond the spreading of disinformation, potentially eroding public trust, influencing critical decision-making, and affecting individual and organisational reputation Huber et al. ( 2021 ).

As an example of the harm and distress caused due to FN, we have the bombardment of disinformation produced with ideological interference in world political events over the past decade, with examples of its effects in critical political events such as Brexit in the UK, the 2016 US election of Donald J. Trump, years where FN hit its peak Yerlikaya & Aslan ( 2020 ). This example highlights how disinformation can rapidly spread, which means it can reach a larger audience, making it increasingly challenging to control and mitigate its impact.

A comprehensive systematic literature review (SLR) on fake news, digital risk, and risk management enabled us to map out the fake news concepts mentioned in the literature and their connections to digital risk. We were able to define fake news, identify its main concepts, and establish the relationships between them. In summary, the SLR seeks to demonstrate that FN is indeed an instantiation of digital risk and paved the way for studying its concepts and developing conceptual modelling here presented.

Given the vast terminology used to define FN, it was essential to present a conceptual model that used the concepts of FN in its multitude of different definitions to provide a metamodel that seeks to understand and decompose the concepts in a rich and diversified manner that reflects the diversity of definitions found in the literature. This article, therefore, aims to build a comprehensive conceptual model derived from the literature that provides clarity to stakeholders, mainly the law enforcement agencies that seek to mitigate the impact of FN in a community.

This research follows the methodology and guidelines of Design Science Research for Information Systems Hevner et al. ( 2010 ), where the conceptual model is the central artefact, and the community is modelled as an organisation using ArchiMate modelling language for enterprise architecture. Furthermore, this research seeks to demonstrate through an instance of FN present in the Central European Digital Media Observatory.(CEDMO) archive to fully understand the model applicability and resilience in a given community.

Research Background

This section comprises three integral parts: Risk, Fake News and the interplay between Digital Risk and Fake News.

The concept of risk has been thoroughly investigated, and the term has different definitions. Renn, O argues that the terms encapsulate different definitions that are not commonly accepted Renn ( 1998 ). The International Risk Governance Council (IRGC) defines risk as an uncertain consequence of an event or activity concerning something that humans value Renn ( 2009 ). This definition conflates with the Rosa ( 1998 ), Rosa ( 2003 ), where the authors state that risk is a situation or event where something of human value (including humans) is at stake, thus having an uncertain outcome. The ontological work Aven et al. ( 2011 ) also agrees that the two previous references express the same idea.

For this work, the authors adopted the definition provided by industry-standard 31 000 for risk management, which is more attainable, stating that risk is defined as the effect of uncertainty on objectives and goals.These uncertainties can arise from various sources, such as ambiguity in decision-making, economic conditions, technological advancements, and legal and regulatory changes. It is important to note that risk has three crucial components - the likelihood of a given event to occur, its consequences or impacts that derive from an event, and, lastly, the uncertainty encompassing these two factors Dali & Lajtha ( 2012 ).

Understanding these components is essential for making informed decisions in the context of risk management. The likelihood of an event signifies the probability of its occurrence, ranging from highly unlikely to almost certain. Consequences, on the other hand, can be of positive or negative outcomes that follow the materialisation of an event. These outcomes have an impact to an organisation and can span a spectrum, enveloping gains, and losses. An effective risk management strategy considers the potential financial implication and evaluates broader repercussions on reputation, operational efficiency, and strategic alignment.

It is worth mentioning that the concept of uncertainty interlinks the likelihood and consequences of an event, highlighting the dynamic and ever-evolving nature of risks. This uncertainty stems from the complexity of interrelated factors, the intricacies of cause-and-effect relationships, and the unpredictability of external influences. It is, therefore, evident that organisations must recognise that risk are not isolated incidents but rather interconnected elements that can trigger a chain of reactions. Consequently, embracing risk management as an ongoing strategy instead of one-time task allows organisations to adapt and respond to the evolving landscape of uncertainties continuously. It is possible to conclude that risk management has become pivotal aspect of modern organisations Dali & Lajtha ( 2012 ).

Furthermore, in the current degree of digitalisation, the ever presence of cyber risk poses a significant challenge to individuals, organisations, and critical infrastructures. The consequences of risk related incidents, has the potential to arouse cyber incidents with extensive and long-lasting impacts on critical infrastructure, emphasising the significance of proactive risk management measures Strupczewski ( 2021 ). The emergence of contemporary technological strides in digitalisation has ushered in novel prospects for business augmentation, process refinement, and heightened efficiencies. Concurrently, this paradigm shift has engendered a heightened susceptibility to the pernicious encroachments of cyber threats precipitated by the intricate interlinking of our intricate system architectures.

Emphasising this dynamic juncture, it becomes paramount to underscore the imperative of formulating an all-encompassing scheme that addresses preserving delicate information and fortifying digital ecosystems’ robustness. Considering the rapidly evolving cyber terrain, the delineation of a holistic approach assumes a pivotal role in mitigating risks and nurturing the resilience indispensable to the sustenance of digital domains Donaldson et al. ( 2015 ). Furthermore, it is imperative not to disregard the interconnected risk of disseminating false information, commonly called fake news. This phenomenon capitalises on technological advancements and interlinked systems to propagate deceptive narratives, misleading individuals. In light of the escalating sophistication and persistence of cyberattacks, comprehending the diverse dimensions of digital risk emerges as an indispensable consideration Singer & Friedman ( 2014 ).

The literature contains different terms that help solidify the definition of FN, which is the broader terminology of this work. Its spread intentionally or unintentionally has severe consequences, especially if widely believed and followed by individuals, and can potentially erode public trust in institutions or media. Effective dissemination is often granted through effecting spreading online with particular emphasis on social media. Generally speaking, state and private actors responsible for spreading disinformation have developed techniques to propagate falsehoods; such techniques may include using automatic bots that indulge in creating effective dissemination networks and infiltrating real social media accounts Aswad ( 2020 ).

When considering the scope of FN, it is fundamental to remember that it does not limit its action solely to social networks; on the contrary, it refers to false or counterfeit material reported in a newspaper, newscast or periodical. It is, therefore, possible to conclude that the spreading of false information takes different forms and uses different means of propagation Ferreira et al. ( 2020 ).

Another aspect to consider when talking about FN is the intention behind the actor responsible for the spreading of disinformation. Should the intention be to deliberately misinform the receptor then it can be classified as disinformation. On the other hand, if the intention to disinformed is null, and should it be the result of a mistake or error then it is defined as misinformation. Misinformation may also refer to information that is incomplete Huber et al. ( 2021 ). The intention is amplified by private interests seeking political or financial rewards, that micro-target vulnerable individuals as seeds to further spread misinformation Bastick ( 2021 ).

There are various definitions of disinformation, including the one provided by the European Commission in its 2018 Code of Practice on Disinformation. According to this definition, disinformation is any false or misleading information created, presented, and spread to make money or deceive the public. This type of information can harm individuals and society as a whole and may pose a threat to democratic political processes and public goods, such as the protection of citizens’ health, the environment, and security within the European Union, Comission ( 2018 ).

According to the United Nations Counter Disinformation Report, there is no clear definition of disinformation. The report states that this phenomenon reflects the new and rapidly evolving communications landscape and technologies that enable the dissemination of unprecedented content at exceptional speeds. This undermines the public trust in institutions and contributes to a polarised society, creating grounds for populism and authoritarianism, General Assembly ( 2022 ).

To fully grasp the phenomenon of FN, it is vital to comprehend its two most associated terminology of information: misinformation and disinformation. It is also essential to comprehend that FN is the broader concept encompassing both realities that can be considered news that provides financial gain or discredit someone. Secondly, they may be referred to as news with a factual context but are presented distorted; and lastly, news that people do not like is classified as FN. These three dimensions are essential, valid, and acceptable definitions Huber et al. ( 2021 ).

Digital Risk and Fake News

Technology is undoubtedly a double-edged sword, both an enabler and a potential catalyst for digit al risks. In an age where information spreads unprecedentedly, the rampant propagation of fake news and disinformation has become a significant concern. This trend calls for a paradigm shift in how organisations and communities approach risk management and resilience.

As enterprises adapt their strategies to navigate the complexities of the digital landscape, they must recognise the intricate connection between technology and disinformation. Developing robust risk management practices and protocols is no longer sufficient in cybersecurity and data breaches. Instead, organisations must broaden their perspective and include combating the menace of FN as an integral part of their risk mitigation efforts Kaidalova et al. ( 2018 ).This strategy includes introduction of new technology to detect patterns, FN in its different shapes and forms disinformation Truică & Apostol ( 2023 ). It may be hard to regulate and control the spread of fake news due to the decentralised nature of the internet, were information crosses borders and spreads quickly. FN, misinformation, and disinformation, of digital disinformation has caused a new wave of concern across communities, having severe consequences that range from political dispute, generating discursive struggles, mostly from hyper partisan outlets Soares & Recuero ( 2021 ).

Organisations must proactively implement comprehensive strategies to fortify their defences against the pervasive threat of FN. The first crucial step is identifying the sources and channels through which FN spreads. Employing advanced algorithms and machine learning techniques can aid in tracking the origins of false information and its dissemination patterns, enabling organisations to respond swiftly and effectively with the removal of accounts that actively spread disinformation is a step forward towards a more resilient online environment. It is important to remember that due to the decentralised nature of the internet this might be a very challenging task Ali et al. ( 2022 ).

The fusion of technology and the associated disinformation caused by FN requires a paradigm shift in risk management. As organisations grapple with complex challenges posed by disinformation it becomes imperative to develop strategies for the swift detection of disinformation and structure an appropriate response for a constructive mitigation of risk despite the hurdles presented by the decentralised nature of the internet, thus paving the way for a more discerning and secure digital future.

Literature Review

This section intends to present the identified concepts and illustrate them, present its definition and consequent reference in the extracted literature (see Table 1 ).

Research Design

This section will first introduce Enterprise Architecture and ArchiMate modelling language. Secondly, it will demonstrate how the identified concepts of FN identified in a previously developed SLR are represented in ArchiMate, illustrating its layer and consequent ArchiMate Concept. Lastly, this section will introduce the proposed conceptual model of FN.

Enterprise Architecture

Known as a strategic discipline focusing on designing and managing an organisation’s overall structure, processes, systems, and technology and making them align with a given organisation’s business goals and objectives - Enterprise Architecture, henceforth EA, aims at providing a holistic view for an organisation. A structured view lets stakeholders understand how different components and resources interact and support the organisation mission Lankhorst & Lankhorst ( 2009 ).

EA encompasses different important domains, this includes the business, data, application, and technology architectures. Furthermore, it also ensures that these domains are coherently integrated in a way that leads to organisational improvement, with special emphasis in the efficiency, agility, and decision-making process es within an organisation. A common adopted framework is TOGAF (The Open Group Architecture Framework) that provides a structured approach to develop and maintain and architecture Lankhorst & Lankhorst ( 2009 ).

Many organisations behave as enterprises, as enterprises can be considered a type of organisation Bogea Gomes et al. ( 2023 ). FN poses a significant threat to enterprises, undermining their reputation and credibility in the eyes of consumers. Businesses must navigate this landscape carefully, implementing robust fact-checking measures and transparent communication strategies to mitigate potential damage to their brand Petratos ( 2021 ).

ArchiMate is a widely used EA modelling language and notation standard developed by The Open Group, currently in its 3.0 specification. It is a systematic and consistent way to describe, analyse and visualise the different aspects of an enterprise Org ( 2019 ).

To fully recognise ArchiMate central value to enterprise modelling it is necessary to acknowledge its Full Framework, which includes the identification of different layers and aspects presented in the Fig. 1 below. It is important to refer that out of the layers that are illustrated below, only the motivational, the strategy and business layers were used to develop the proposed conceptual model.

Source: Org ( 2019 ).

The common identified strength of ArchiMate modelling language, lies on the ability to represent complex relationships between various architectural elements, e.g., business processes, applications, data, and technological infrastructure Org ( 2019 ).

Mapping Fake News Concepts onto ArchiMate

The following section depicts a table with the concepts identified in the literature, the same concept representation in ArchiMate here with some being decomposed for the illustration of different perspectives surrounding the same concept. The last column of Table 2 presents a definition of each ArchiMate Concept in accordance with the Open Group Standard specification 3.0 Org, O( 2019 ). Also, Table 3 , presented below, illustrates the different ArchiMate relationships used in the conceptual model, which uses the same specification.

The ArchiMate modelling language was used to create the model, depicting the mitigation of the impact of FN in a community. The conceptual model aimed to model a community as an organisation, and thus, using ArchiMate was deemed appropriate to represent the concepts derived from the literature, their relationships, and notations. The colour scheme was used to differentiate between the ArchiMate language layers. In the text below, bold terms represent concepts and their relationships. Italicised terms represent ArchiMate elements.

Fake News , mapped here in the strategy layer as a Course of Action , represents the inner purpose of a malicious actor to spread disinformation, thus having a clear goal or plan for damaging the reputation of a third party, organisation or individual. A strategic plan is taken into action, prevailing a scenario of misinformation, where the main goal is to disseminate fabricated and misleading information.

Note that for each instance of FN, an associated Impact is illustrated in the motivation layer. On the other hand, an impact leads to an Outcome or end-result. The impact affects the perception of the truth, distortion of reality through disinformation campaigns, erosion of public trust, social division, economic effects, health risks, political manipulation, crisis response, disruption, media credibility damage and other potential regulatory factors Petratos ( 2021 ).

Another critical aspect of paramount representation in the conceptual model is Context , which is also present in the motivation layer. For each instance of FN, there is one or more associated contexts, characterised in ArchiMate as Meaning - referring to the significance or purpose associated with different elements of FN. Moreover, behind a context of disinformation, it personifies an Intention (also in the motivation layer) that illustrates the motive of the perpetrator or actor, represented in the ArchiMate concept of Driver - a condition that motivates the agent of disinformation to spread false information Huber et al. ( 2021 ).

The Agent is a decomposed concept, a decision made by the researchers in order to provide a clear understanding of the two different meanings of the concept - Fake News Agent refers to an actor or organisation responsible for plotting and deploying a disinformation campaign and spreading FN - present in the Motivation layer as a Stakeholder ; and the Affected Agent - illustrated in the business layer as a Business Role intent to epitomise the individual or organisation that is directly or indirectly affected by the impact of FN Huber et al. ( 2021 ); Yerlikaya & Aslan ( 2020 ).

The concept of Source is also present at the business layers as a Business Role , referring to the origin of FN. A decision was made to represent the source as a Business Role , rather than a Business Actor , as the source is a role that can be played by different individuals, not necessarily the same actor. Also related to the concept of Source is the Content originating from the different newscasts and outlets and social media present in the business layer as a Business Service , serving the Source with false information that feeds the spreading Lazar & Paun ( 2020 ); Yerlikaya & Aslan ( 2020 ).

A concept that stands out due to its importance is Verifiability , essentially referring to the investigation taken by Law Enforcement Agencies (LEA), fact-checkers, and journalists alike regarding the veracity of the news. This concept is represented in the business layer as a Business Process , as it is intended to represent a much-needed sequence of actions required to verify the information Huber et al. ( 2021 ).

Also, on the business layer is the concept of Medium , illustrating the means by which disinformation is spread, this could be done through many different forms (e.g., social media, news outlets, television, etc.). This concept is represented as a Business Interface , as it is a point of confluence and access trigging the source, associated with FN event, and broadly introducing the content of disinformation to the public.

Lastly, we have another decomposed concept in the business layer - Event . The concept was decomposed into two concepts - Fake News Event , illustrating the instantiation of FN represented in ArchiMate as Business Event denoting a state of change and a behavioural aspect that characterises FN, meaning an event that has a beginning and an end; and Type of Event referring to the category of FN represented as a Business Function an activity with a sole function of categorising FN.

Fake News Conceptual Model

Figure 2 below illustrates the proposed conceptual model, for details regarding its ArchiMate notation, definitions, and modelling justification decision please refer to the previous subsections.

Fake News conceptual model following the ArchiMate specification notation as Org ( 2019 ).

Demonstration

This section presents a demonstration of the proposed model into a real instantiation of FN. Furthermore, it also presents the mapping instantiated concepts, and an instantiated conceptual model in ArchiMate.

Fake News Through and Instantiation

In order to find a credible instance of FN, the authors resorted to the Central European Digital Media Observatory (CEDMO) archive. CEDMO is a European independent and non-partisan multidisciplinary hub that identifies and researches FN activities across the continent. It works closely with fact-checkers from different member states having regional hubs in different regions that work closely to decrease the impact of disinformation, strengthen transparency, understand enhanced media, and rebuild trust in media Observatory ( 2023 ).

The chosen instance of FN is titled “BREAKING: COVID-19 Vaccine Can Cause Blindness". This was broadly propagated in social media with particular emphasis on spreading through X (formerly known as Twitter). The full post, dated the 5th of May 2023, suggested that scientific research demonstrated that COVID-19 vaccination was responsible for blindness. The post gain traction when an alternative health blogger Erin Elizabeth retweeted becoming one of the top spreaders of the anti-vaccine content online. The post was later considered by independent fact checkers as being of misleading nature as no evidence suggesting an association between the covid-19 vaccination blindness Goldhamer ( 2023 ).

Essentially, the post focused on the study findings to argue that vaccinations caused retinal vascular disease (RVO), thus demonstrating that vaccinated patients had significantly increased risk of RVO, nevertheless, and according to CEDMO consortium factcheckers, the post failed to mention there is not a strong correlation and clear link between vaccination and the referred eye problem. Thus, conclusions suggest that the evidence is not very strong, and moreover the RVO is also not a very common disease, making the post-affirmation unfunded and misleading Goldhamer ( 2023 ).

On making a swift reflection on the consequences and impact of this post, it is indeed possible to understand its significant effect on the online community. Like any other piece of misinformation, the problem is not solely on the actual post but on its societal consequences, and this is more true should we consider the high rate of sharing and retweeting contributing to an exacerbated effect of disinformation on a mass scale.

Mapping the Instantiation onto the SLR Concepts

Table 4 presented below serves as a visual representation of the relationships between the identified instantiated concepts of FN and the SLR Concepts in ArchiMate.

Table 4 presents the instantiated concepts of FN derived from the chosen event of FN previously presented in the above subsection. A single event of FN produces several instances that are of possible consideration for our model. It is essential to understand that this work solely seeks to model one instance. When reading the entire article presented in the CEDMO fact-checking repository, we quickly realised that different instances are suitable for modelling. The provided content was initially spread through X, re-shared by other users in the same social network and reproduced in other social media such as Facebook and Instagram. Later, it was also reproduced in the blog of an alternative health blogger - Erin Elizabeth and others Goldhamer ( 2023 ).

A decision was made amongst the authors to solely demonstrate in the bellow instantiated conceptual model the first instance, meaning the moment that the disinformation was first shared by Mario Nawfal on the social network X. Having this into consideration, the above table derived the instantiated concepts of FN presented on the left column on Table 4 . Please note that the instantiated concepts illustrated on the left column map with the concepts of the right column.

Instantiated Conceptual Model

This subsection explains the flow of disinformation. This characterisation is based on the intrinsic intention to fuel conspiracy theories Goldhamer ( 2023 ). The below paragraphs show the concepts in bold and the relationship between concepts are italicised . It also presents on Fig. 3 the instantiated conceptual model.

Fake News Instantiated conceptual model following the ArchiMate specification notation as Org (2019).

The first instance of the spreading of disinformation to the general public regarding Covid- 19 vaccination, and its possible connection with blindness occurs in X, having been triggered by an individual, thus represented in the model as Individual: Source it Assigns a stakeholder known as Mario Nawfal an entrepreneur and alternative health advocate represented as a stakeholder as he directly benefits from the impact of this instantiation in society. The concept is illustrated as Mario Nawfal Alternative Health Advocate: Fake News Agent . The Impact Brings Risk to a community, illustrated as role Community: Affected Agent representing the different affected communities. The intention questions the judgments of the scientific community, introducing doubts regarding the safety of COVID-19 vaccines and generating alarm. Cifuentes-Faura ( 2020 ); Vasconcellos-Silva & Castiel ( 2020 ).

A Fake News impact Characterised by its context, represented as Covid-19: Context and it is Instantiated by an event characterised and defined by the CEDMO and AFP factchecker as Covid-19 Vaccines Blindness: Fake News Event. The instantiation is then Spread through a the social network X a chosen Medium for propagation of FN, represented in the model by its instantiation X:Medium . The Medium is associated to a specific Content - Mario Nawfal Post, represented in the model as Mario Nawfal Post: Content that is then classified and defined as disinformation, illustrated as Disinformation: Type Event . Lastly, the source of FN Is Linked with the Intention to mislead the general public, represented as Mislead General Public:Intention .

This section elucidates the researchers’ systematic approach to evaluating the conceptual and instantiation models introduced in the previous section. The study embraced the Bunge-Wand-Weber Model (BWW model) for evaluation–a comprehensive framework for appraising a First Normal Form (1NF) conceptual model and its instantiation within a database system - an ontological approach for evaluation proposed by Fettke & Loos ( 2003 ). This approach offers a structured and rigorous methodology for assessing the quality and efficacy of a database schema in faithfully representing real-world information, ensuring a methodical and well-rounded evaluation process. We aim to adapt this methodology, initially designed for database assessment, to evaluate our models, leveraging its proven effectiveness for our research purposes.

The first step towards the application of this framework was the delineation of the following research questions (RQ):

RQ1 - Is there any instantiated concept that is not mapped onto a SLR concept in ArchiMate?

RQ2 - Is there any instantiated concept maps more than one SLR concept in ArchiMate?

RQ3 - Does each SLR concept in ArchiMate map onto each instantiated concept?

RQ4 - Does each SLR concept in ArchiMate maps onto one or more than instantiated concept?

The below Fig. 4 illustrates the four ontology deficiencies identified by the suggest ontological approach Fettke & Loos ( 2003 ) the interpretating whether the instantiated concepts are mapped onto the constructed conceptual model.

Source: Fettke and Loos ( 2003 ).

The proposed RQs reflect and illustrate the ontological deficiencies identified by Fettke, P., Loos, P.(2023) Fettke & Loos ( 2003 ). To further assess and evaluate our model, the authors seek to answer the RQs by applying the BWW model framework designed to address three key aspects:

An intricate examination of the conceptual mapping found in Table 4 of this paper.

The identification and rectification of any constructive deficiencies in the proposed model.

The applications of the normalisation process onto the instantiated model.

To answer this RQ we firstly looked at both models presented in the Figs. 2 and 3 to assess if each of the concepts of the instantiation mapped onto one and only one SLR concepts in ArchiMate. As we previously demonstrated in the Table 4 , each of the instantiation concept maps onto one and only one SLR concept in ArchiMate.

We then decided to re-examine the FN instantiation description, focusing our analysis on CEDMO’s fact-check repository Goldhamer ( 2023 ). In particular, we delve deeper into “Disinformation" as a Type of Event, engaging in a thorough discussion regarding the classification of this concept, ultimately arriving at a consensus that “disinformation" indeed serves as the appropriate classification for the type of event. Other possible classifications include misleading information, which according to the developed SLR can happen intentionally or unintentionally and can occur in various forms, as information or communication presented leading people to form an incorrect understanding or conclusion.

The selective nature of the information presented by the fake news agent Mario Nawfal suggest the misusage of scientific information, with author taking advantage of information from a scientific paper to quote facts out of context and presenting it in a way that amplifies fear and uncertainty towards vaccines and general health care practices Goldhamer ( 2023 ). One can argue that the intention behind the spreading of fake news can differ from the one presented in the model (e.g., discredit of vaccination campaigns, reputational damage to the national health service, etc.), nevertheless the authors decided that the best way to represent a more generic intention and thus keep misleading the general public as the main intention behind the spreading of disinformation.

The represented models do not show associations between one instantiated concept and two or more SLR concepts in ArchiMate. In other words, there is no redundancy of concepts represented in our model, as each concept has a clear definition and differs from other represented concepts. It is essential to differentiate decomposed concepts that only represent one SLR concept. There are undoubtedly two concepts that were decomposed: Agent and Event.

There is indeed a difference between decomposition and redundancy. A decomposition happens because a concept holds more than one meaning in the literature (e.g., the concept of the agent is divided between the affected agent and the agent that spreads FN), whereas redundancy happens when there is a concept that represents the exact meaning of another. Having observed this reality, the authors decided to interpret the definition provided by the SLR ? and decomposed the concept to avoid misrepresenting the different meanings of the different concepts in the literature.

RQ3 -Is there any SLR concept in ArchiMate that does not map onto any instantiated concept?

The suggested problem patent in RQ3 is a problem of excess conceptual representation illustrated in Fig. 4 , where the instance would have less concepts than the ones patent in the conceptual model. To avoid this problem the authors supported their conceptual representation into a previously developed SLR. The idea was to have a solid definition of the concepts before defining the conceptual model, thus ensuring that for each concept correspond one instantiated concept.

Furthermore, it is important to understand that the identification of the instantiated concepts derived from pure interpretation of the description of the instantiation in its source patent CEDMO Repository Observatory ( 2023 ) and briefly summarise in the demonstration (section 5) of this paper.

In conclusion for each instantiation there is a SLR Concept that corresponds and therefore there is no isolated SLR concept in ArchiMate present in our model.

RQ4 - Is there any SLR concept in ArchiMate that maps onto more than one instantiated concept?

Each instantiated concept maps into only one SLR concept in ArchiMate in a one-to-one relationship. In practice, if we want to reduce redundancy and apply the BWW model according to Fettke & Loos ( 2003 ), we will first have to determine which instantiated concepts would require normalisation by creating an interdependent relationship between an instantiated concept and a derived one. In other words, we would have to look at the present model in Fig. 3 and first decide which instantiated concept we would like to normalise. Should we, for example, decide upon the x: medium instantiated concept, we would have to create another Business Interface and provide a composed relationship between concepts.

The suggested alteration would mean that we would have to add a composed relationship to the X: medium instantiated concept with, for example, X Post: medium. Note that the composition relationship would indicate that the post only exists if the X: medium concept exists, or in other words should X: medium cease to exist the X post: medium would also cease to exist.

Should we decide upon this normalisation, this relationship would only be a complement to the original model and would not necessarily add any extra value to the instantiated conceptual model; therefore, in order to ensure robustness, a decision was made to keep the model more straightforward and only represent the X: medium instantiated concept. In conclusion there was the possibility that two instantiated concepts would be associated with one SLR concept in ArchiMate, though to ensure having simpler model and a robust one a decision was made not to make alterations to the model.

This paper proposed a conceptual model to identify and analyse the risk associated with the impact of Fake News and Disinformation, which can cause reputational damage to individuals, organisations, and brands in the community Flostrand et al. ( 2020 ). It is, therefore, important to take steps to study the phenomenon of Fake News and invest in policies, techniques and frameworks that aid in mitigating the associated risk.

The risk of FN is also strongly related to the digital environment of a given community. The conceptual module here presented aims at aiding policymakers, legal enforcement agencies, and business organisations in providing a comprehensive framework that firstly contributes to the verification of the veracity of the information, provides a means to identify the agent (s) of disinformation and relates the context with the different mediums of propagation and spreading of the news.

The work presented here opted to use Design Science Research as a prime method to design a conceptual model, demonstrate through a credible instantiation and evaluate the proposed model using a credible framework. It is important to understand that this research work would only be possible due to the strong foundation of a developed systematic literature review that aimed at defining the terminology between the cross of - Fake News and Risk terminology.

Furthermore, this work demonstrates the conceptual model in ArchiMate utilising the case of “BREAKING: COVID-19 Vaccine Can Cause Blindness." Future work involves refining this conceptual model by employing other case studies to ensure a comprehensive perspective on FN risk management.

The results of this study are a practical conceptual model and a systematic mapping of the concepts of FN and the proposed instantiation. Moreover, the evaluation that followed the proposal indicated a solid and robust model, with the evaluation suggesting that common mistakes such as mapping incompleteness, redundancy, excess and overload are not present in the model. It is vital to notice the relevance of the design decisions contributing to this result.

An evident limitation of this research work is its reliability to the adopted SLR view and strategy and subsequent interpretation, so our results also depend on its accuracy. It would strongly benefit our research if we could have a Multivocal Literature Review that considers the academic literature and the grey literature present in online libraries.

Data availability

All data concerning the Systematic Literature Review may be provided by the authors upon request. The conceptual model was modelled in Archi Software Tool, all files can be made available upon request.

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Acknowledgements

This work has been partially supported by European Union’s HE research and innovation program FERMI under the grant agreement No. 101073980 and the Portuguese Technologies Institute - INOV - Instituto de Engenharia de Sistemas e Computadores Inovação.

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JVC conducted the research, conceived the ArchiMate model, conducted the demonstration and evaluation, and wrote the draft of the manuscript. SBG validated the ArchiMate Model and its instantiation.MMS coordinated the study, participated in the design of the research protocol, and oriented the evaluation process. All authors read and approved the final manuscript.

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Varela da Costa, J., Bogea Gomes, S. & Mira da Silva, M. Fake News: a conceptual model for risk management. Humanit Soc Sci Commun 11 , 625 (2024). https://doi.org/10.1057/s41599-024-03096-0

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