Every board that tolerates cross-line subsidies should be able to answer one question: how much capital are we willing to deploy to lines that cannot stand on their own? The risk-appetite test for cross-line subsidies is the board's framework for drawing that line.
A stress test for the board: if the unprofitable segments in your portfolio doubled in capital consumption, what would fail first - earnings, capital ratios, rating-agency confidence, or the board's own ability to govern? Answering that question is the board's risk-appetite obligation.