Bank Risk Management: Literature Review On Bank Risk Management

BANK RISK MANAGEMENT

LITERATURE REVIEW

Risk management is the process of defining, assessing and controlling threats to a company's capital and profits. These threats, or risks, could root from a wide diversity of sources, including financial indefinitiness, legal responsibilities, strategic management wrongs, accidents and natural disasters. As a result, a risk management plan increasingly includes companies' processes for identifying and controlling threats to its digital assets, including proprietary corporate data, a customer's personally identifiable information and intellectual property.

Corporations take risk management very seriously-recent surveys find that risk management is linen by financial executives as one of their most significant

Bank Risk Management encompasses market risk as well as credit risk management. Bank Risk Management gives an opinion of future risks and also promotes careful risk taking behavior.

Repeated financial problems faced by financial, non-financial and government organizations have caused the need for bank risk management policies.

Different from regulatory demands, bank risk management is needed by the bank managers for the these reasons:

Creation of standards for accounting of reward-risk ratios. Investment of capital is then directed to options with high reward risk ratios.

Appreciation of the reasonable losses. It leads to wise risk taking judgement by investors as the risk monitoring unit is already put in place. Banks also find out to handle their reachable liquidity well.

The risks met in Bank Risk Management. Performance risk-this happens in situation where workers are not properly monitored.

Credit risk-Sometimes the associates are unable to respect their payment liabilities. This leads to a difference in the net value of assets of the bank

Operational risk-This arises due to the misfortune of banks to properly carry out their different operational process. Untimely collection of earnings, inability in meeting the set guidelines and the like drop in this

Scenario analysis: A prediction is made attitude the difference in the value of a portfolio. The resultant estimated figure is the evaluated loss. A comprehensive analysis of the types of risk measurement opinions entails imagination of confused analytical methods, avoided here.

Banks and alike financial enterprises need to meet prospective regulatory demands for risk measurement and capital. However, it is a strict wrong to think that meeting regulatory requirements is the only or even the most significant cause for creating a sound, scientific risk management system. Managers need valid risk measures to turn capital to activities with the best risk/reward ratios. They need appreciation of the size of possible losses to stand within limits imposed by readily available liquidity, by creditors, customers, and regulators. They need mechanisms to control situations and make stimulus for prudent risk-taking by divisions and individuals.

Risk management is the act by which managers satisfy these needs by identifying key risks, acquiring logical, clear, operational risk measures, selecting which risks to decrease and which to increase and by what means, and creating procedures to control the resulting risk