Yak Banking Awareness Inwards Unproblematic Linguistic Communication - Lesson 23
Banking Awareness Lessons inward Simple Language
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- Read Lesson v from Here
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- Read Lesson vii from Here
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- Read Lesson 17 from here
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Banking Awareness 2017 : Bank Risks & Risk Management
Bank Risks
In the course of report of their operations, banks require to aspect upwardly diverse types of risks that may receive got potentially negative number on their business. There are 8 types of risks. We tin class these risks inward iii categories. They are :
- Major Risks
- Credit Risk
- Market Risk
- Operatically Risk
- Other Significant Risks
- Liquidity Risk
- Business Risk
- Reputational Risk
- Unrelated Risks
- Systematic Risk
- Moral Hazard
Now let's larn close them inward detail
Major Risks
Credit Risk
The BCBS (Basel Committee on Banking Supervision) defines credit endangerment every bit the potential that banking concern borrower or counterpart, volition neglect to run into its payment obligations regarding the terms agreed amongst the bank. Let's seek to sympathise this inward uncomplicated words, If a borrower does non repay a loan, the lender may lose the regulation of the loan or the involvement associated amongst it. It arises because the borrower expects to role futurity cash flows to pay electrical flow debts.
H5N1 credit endangerment is the danger of default on an obligation that may emerge from a borrower neglecting to brand required installments.
Credit endangerment is most probable caused past times loans, acceptances, interbank transactions, merchandise financing etc.
H5N1 credit endangerment is the danger of default on an obligation that may emerge from a borrower neglecting to brand required installments.
Credit endangerment is most probable caused past times loans, acceptances, interbank transactions, merchandise financing etc.
Market Risk 
BCBS defines marketplace seat endangerment every bit the endangerment of loses inward on or off repose sail seat that arise from displace inward marketplace seat prices. Market endangerment arises due to the factors affecting the overall performance of the fiscal market, it is also known every bit the systematic risk.
Operational Risk
BCBS defines operational endangerment every bit the endangerment of loss resulting from inadequate or failed internal processes, people & systems or from external events. This Definition includes legal risk, but excludes strategic in addition to reputation risk. Simply, the Operational endangerment is the endangerment non arising from financial, systematic or market-wide risk. It is the endangerment remaining subsequently determining systematic in addition to financing endangerment in addition to includes endangerment resulting from breakdowns inward internal procedures.
As per BIS (Bank of International Settlements) operational endangerment is the endangerment of loss, resulting from failed internal process, people in addition to systems or from external events.
Operational managements are of next types
As per BIS (Bank of International Settlements) operational endangerment is the endangerment of loss, resulting from failed internal process, people in addition to systems or from external events.
Operational managements are of next types
- Human risk: loss because of a human error, done unconsciously or willingly.
- IT/System risk: Losses due to failure of systems, failure of software, etc.
- Processes risk: Loss caused due to improper information, leaking of information.
Other Significant Risks
Liquidity Risk:
Liquidity way a banking concern has the powerfulness to run into payment obligations primarily from its depositors in addition to has plenty coin to plough over loans. "So, the liquidity endangerment is the endangerment of a banking concern non existence able to receive got plenty cash to demeanor out its solar daytime to solar daytime operations".
Business Risk:
It is the endangerment arising from a bank's long-term draw concern strategy. It tin also arise from a banking concern choosing the incorrect strategy which mightiness atomic number 82 to its failure.
Reputation Risk:
It is the endangerment of impairment to a bank's icon & populace standing that occurs due to around dubious actions taken past times the bank. It leads to the public's loss of confidence inward a bank.
Reputational endangerment is the major hidden endangerment than tin pose a threat to the survival of the bank. The reputational endangerment arises from the actions of errant employees.
Reputational endangerment is the major hidden endangerment than tin pose a threat to the survival of the bank. The reputational endangerment arises from the actions of errant employees.
Unrelated Risks :
Systematic Risk:
It refers to the endangerment that the entire fiscal scheme mightiness come upwardly to a standstill. Systematic endangerment is the mention of the most nightmarish scenario you lot tin squall upwardly of.
Systematic endangerment consists of solar daytime to solar daytime fluctuations inward a stock’s price
Systematic endangerment consists of solar daytime to solar daytime fluctuations inward a stock’s price
Moral Hazard:
It is most interesting endangerment that nosotros volition cover. We read in addition to heard the phrase "too-big-to-fail" inward the media. "Too-big-to-fail" is zilch but moral endangerment inward a scene.
Moral Hazard refers to a province of affairs where a person, a grouping (or persons) or an arrangement is probable to receive got vogue or willingness to convey a high degree risk, fifty-fifty if its economically unsound. It emerges when both the parties receive got inadequate information close each other.
Risk Management
Risk Management inward Indian banks is a relatively newer practice, but has already shown to increase efficiency inward governing of these banks every bit such procedures tend to increase the corporate governance of a fiscal institution. Risk administration inward banking concern operations includes endangerment identification,
touchstone in addition to assessment, in addition to its objective is to minimize negative effects risks tin receive got on the fiscal outcome in addition to uppercase of a bank. Banks are thence required to shape a particular organizational unit of measurement inward accuse of endangerment management. Also, they are required to prescribe procedures for endangerment identification, touchstone in addition to assessment, every bit good every bit procedures for endangerment management.
The Reserve Bank of Republic of Republic of India (RBI) has issued several guidelines on Bank Risk Management System. They are
- Activities of Asset-Liability Committee (ALCO) in addition to credit policy commission should survive integrated.
- Banks receive got to gear upwardly a definite fourth dimension frame for moving over to value at risk.
- Banks receive got to furnish a contingency conception to run into adverse swings inward liquidity conditions.
- Banks should evaluate portfolio character on an on-going the world instead of close repose sail date.
- Banks to laid upwardly a comprehensive endangerment rating systems for counter parties.
- By Mar 2001 banks amongst international presence receive got to educate methodologies for estimating in addition to maintaining economical capital.
- For managing liquidity endangerment banks should house limits on inter banking concern borrowings.
- For off repose sail exposure the electrical flow in addition to potential credit exposure to survive measured on a daily basis.
- Investment proposals to survive included inward the full endangerment evaluation.
- Investment proposals to survive subjected to same credit endangerment analysis every bit inward the example of loan proposals.
That's all for directly friends. In our adjacent Banking Awareness lesson, nosotros shall larn close Capital Market. Happy Reading :)
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