Bank risk management concepts

The concept of bank risk management refers to all the different types of risks faced by banks when they carry out their activities. Typically, this varies depending on the type of business to develop this institution. A bank is a special type of company, which captures money the public, these outside resources, together with the institution’s own resources are transferred in the form of loans to third parties, who pay interests by the use of money.

So, usually the resources that a bank generates revenues are in part themselves (heritage or capital), and mostly foreign (deposits the public). Therefore, since most of the money that a given bank does not belong, bank management requires a constant process of evaluation and measurement of risks to set out the resources of depositors in the operations of the entity.

Such risks, together, are called bank risk and its management is often governed by bodies supervisors banking (Superintendents) in each individual country. A basic concern of these agencies is to ensure that each bank to repay public deposits, which requires an adequate level of capital so that in case of loss, it is covered by own resources and not with public money. Therefore, each entity must have a proportional capital resources risk and level of risk that exposes. This relationship between self and what is known as risky level solvency and calculate the ideal ratio is the subject of international efforts.

Types of risk

* Credit risk: This concerns the possibility of having large losses for the reason that a customer does not meet the credit obligations to which they committed.
* Liquidity risk: This refers to the possibility that excessive losses occur because of decisions made in favor of having resources quickly in order to meet present and future commitments.
* Foreign exchange risk: This refers to the possibility of losses from changes in exchange rates of different currencies at which a financial institution operates or has invested resources.
* Interest rate risk: This refers to the declining value of the assets or the assets of an entity due to changes in interest rates, which can lead to the institution having heavy losses.

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Tagged with: bank investment • bank loan • bank management • bank risk • Credit risk • Foreign exchange risk • Interest rate risk • Liquidity risk • types of risks

Filed under: finance

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