risk management in bank

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RISK MANAGEMENT IN BANKS

A PROJECT REPORT ON

RISK MANAGEMENT INBANKS

SUBMITTED BY

AARTI R. MAURYAROLL# 28

IN THE PARTIAL FULFILLMENT FOR THE DEGREE IN

T.Y.B.BI(COMERCE)

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2013-2014

University Of Mumbai

ACKNOWLEDGEMENT

INDEX

1. Introduction ..5

2. Types of Risk in Bankin..8

3. Scams in Indian Banking Sector.....28

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4. Seven tenets of risk management in the banking industry...30

5. Conclusion...41

6. Questinare ...42

7. Bibiography ......43

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RISK MANAGEMENT IN

BANKS


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1. INTRODUCTION

Risk management is the process of measuring the actual orpotential danger of particular situation.

The technology of the word risk can be traced to the Latinword rescum meaning risk at sea or that which cuts.

Risk inherent in any walk of life in a general and financial

sector in particular. Due to regulated environment, bank couldnot afford to take risk.

Risk and uncertainties form an integral part of banking with bynature essential taking risk.

Risk management system is the pro active action in the

present for the future. Managing risk is nothing but managingthe change before the risk management.

Riak management in Indian banks is relatively newer practice.Indian banks have been making great advancement in term oftechnology and quality as well as stability such that they havestarted to expand and diversify at a rapid rate .However suchexpansion brings these banks into the context of risk especiallyat the onset on increasing Globalization and liberalization. Inbanks and other financial institution.

Risk plays a major part in the earning of a bank.Higher the riskhigher the return. Hence it is an essential to maintain paritybetween risk and return.

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There are mainly two types of risk Financial risk

Non financial risk

The type of risks can be fundamentally subdivided in primarily

of two types, i.e. Financial and Non-Financial Risk. Financial

risks would involve all those aspects which deal mainly with

financial aspects of the bank. These can be further subdivided

into Credit Risk and Market Risk. Both Credit and Market Riskmay be further subdivided.

Non-Financial risks would entail all the risk faced by the bank

in its regular workings, i.e. Operational Risk, Strategic Risk,

Funding Risk, Political Risk, and Legal Risk.

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2. TYPES OF RISK IN BANKING

1.FINANCIAL RISK

Financial risks would involve all those aspects which dealmainly with financial aspects of the bank.

A.CREDIT RISK

Credit Risk is the potential that a bank Borrower/counter partyfails to meet the obligations on Agreed terms.

There is always scope for the borrower to Default from hiscommitments for one or the other reason resulting in

crystalisation of credit risk to the bank.

These losses could take the form outright default oralternatively losses from changes in portfolio value arisenCredit Risk is the potential that a bank Borrower/counter partyfails to meet the obligations on agreed terms.

There is always scope for the borrower to default from hiscommitments for one or the other reason resulting incrystallization of credit risk to the bank.

These losses could take the form outright default oralternatively, losses from changes in portfolio value arising

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from actual or perceived deterioration in credit quality that isshort of default.

Credit risk is inherent to the business of lending funds to theoperations linked closely to market risk variables.

The objective of credit risk management is to minimize the riskand maximize banks risk adjusted rate of return by assumingand maintaining credit exposure within the acceptableparameters. from actual or perceived deterioration in creditquality that is short of default.

Credit risk is inherent to the business of lending funds to theoperations linked closely to minimize the risk and maximizebanks risk Adjusted rate of return by assuming andmaintaining Credit exposure within the acceptable parameters.

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a. TYPES OF CREDIT RISK MANAGEMENT

Counterparty or borrower risk

Intrinsic or industry risk

Portfolio or concentration risk

1. COUNTERPARTY RISK

A counterparty risk, also known as a default risk, is a risk

that a counterpartywill not pay what it is obligated to do ona bond, credit derivative, trade credit insurance orpayment

protection insurancecontract, or other trade or transaction

when it is supposed to.[11]Financial institutions may hedgeor

take out credit insurance of some sort with a counterparty,

which may find themselves unable to pay when required to do

so, either due to temporary liquidityissues or longer term

systemic reasons.

2. PORTFOLIO OR CONCENTRATION RISK

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Concentration risk is a bankingterm denoting the overall

spread of a bank's outstanding accounts over the number or

variety ofdebtors to whom the bank has lent money. This risk

is calculated using a "concentration ratio" which explains what

percentage of the outstanding accounts each bankloan represents.

b. TOOLS FOR MANAGING CREDIT RISK MANAGEMENT

While financial institutions have faced difficulties over the yearsfor a multitude of reasons, the major cause of serious bankingproblems continues to be directly related to lax credit standardsfor borrowers and counterparties, poor portfolio risk

management, or a lack of attention to changes in economic orother circumstances that can lead to a deterioration in thecredit standing of a bank's counterparties.

Credit risk is most simply defined as the potential that a bankborrower or counterparty will fail to meet its obligations inaccordance with agreed terms. The goal of credit riskmanagement is to maximize a bank's risk-adjusted rate of

return by maintaining credit risk exposure within acceptableparameters. Banks need to manage the credit risk inherent inthe entire portfolio as well as the risk in individual credits ortransactions. Banks should also consider the relationshipsbetween credit risk and other risks. The effective managementof credit risk is a critical component of a comprehensive

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approach to risk management and essential to the long-termsuccess of any banking organization.

For most banks, loans are the largest and most obvious sourceof credit risk; however, other sources of credit risk existthroughout the activities of a bank, including in the bankingbook and in the trading book, and both on and off the balancesheet. Banks are increasingly facing credit risk (or counterpartyrisk) in various financial instruments other than loans, includingacceptances, interbank transactions, trade financing, foreignexchange transactions, financial futures, swaps, bonds,equities, options, and in the extension of commitments and

guarantees, and the settlement of transactions.

c. SOUND PRACTICE FOR MANAGING CREDIT RISK

Establish an appropriate credit risk environment

Operate under a sound credit granting process.

Maintain an appropriate credit administration measurement

and monitoring process.

Insure adequate control over credit risk environment

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Boar4df of director should review credit risk strategy

periodically.

Senior manager should implement credit risk stragy

approved by the board.

B.MARKET RISK

Market Risk may be defined as the possibility of loss to bankcaused by the changes in the market variables.

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It is the risk that the value of on-/off-balance sheet positions willbe adversely affected by movements in equityand interest ratemarkets, currency exchange rates and commodity prices.

Market risk is the risk to the banks Earnings and capital due tochanges in the market level of Interest rates or prices ofsecurities, foreign exchange and Equities, as well as thevolatilities, of those prices.

Market Risk Management provides a comprehensive anddynamic frame work for measuring, monitoring and managingliquidity, interest rate, foreign exchange and equity as well as

commodity price risk of a bank that needs to be closelyintegrated with the banks business strategy.

Scenario analysis and stress testing is yet another tool used toassess areas of potential problems in a given port-folio.Identification of future changes in economic condictions like economic/industry overturns, market risk events, liquidityconditions etc that could have unfavorable effect on banksportfolio is a conditionprecedent forcarrying out stress testing.

As the underlying assumption keep changing from time totime, out-put of the test should be reviewed periodically asmarket risk management system should be responsive andsensitive to the happenings in the market

a. TYPES OF MARKET RISK MANAGEMENT

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Interest rate risk

Liquidity rate risk

Currency forex risk

Hedging / commodity risk

1. INTREST RATE RISK:

Interest rate risk is the risk that arises forbond owners fromfluctuating interest rates. How much interest rate risk a bondhas depends on how sensitive its price is to interest ratechanges in the market.

How to manage interest rate risk:

Banks must have an adequate system of internal controls over

their interest rate risk management process.

Banks must have adequate information systems for measuring,

monitoring, controlling and reporting interest rate exposures.

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2. LIQUIDITY RATE RISK:

Bank Deposits generally have a much shorter contractual

maturity than loans and liquidity management needs to provide

a cushion to cover anticipated deposit withdrawals.

Liquidity is the ability to efficiently accommodate deposit as

also reduction in liabilities and to fund the loan growth and

possible funding of the off-balance sheet claims.

The cash flows are placed in different time buckets based on

future likely behavior of assets, liabilities and off-balance sheet

items.

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Liquidity risk consists of Funding Risk, Time Risk & Call Risk.

Funding Risk : It is the need to replace net out flows dueto unanticipated withdrawal/nonrenewal of deposit.

Time risk : It is the need to compensate for nonreceipt ofexpected inflows of funds i.e. performing assets turninginto nonperforming assets.

Call risk : It happens on account of crystalisation ofcontingent liabilities and inability to undertake profitablebusiness opportunities when desired.

The Asset Liability Management (ALM) is a part of the overallrisk management system in the banks.

It implies examination of all the assets and liabilitiessimultaneously on a continuous basis with a view to ensuring aproper balance between funds mobilization and theirdeployment with respect to their

maturity profiles

cost, yield,

risk exposure,etc.

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It includes product pricing for deposits as well as advances,and the desired maturity profile of assets and liabilities.

Tolerance levels on mismatches should be fixed for variousmaturities depending upon the asset liability profile, depositmix, nature of cash flow etc.

Bank should track the impact of pre-payment of loans &premature closure of deposits so as to realistically estimate thecash flow profile.

How to manage Liqudity rate risk:

The risk must be managed within a defined risk

management framework (decision-making)

A clear liquidity risk management and funding strategy must

be agreed at an executive and non-executive board level

Procedures for liquidity planning under alternative scenarios

must be agreed, including crisis situations.

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3. CURRENCY FOREX RISK:

Currency Forex risk (also known as exchange rate risk orforeign exchange risk) is a financial risk posed by anexposure to unanticipated changes in the exchange ratebetween two currencies.

Investors and multinational businesses exporting or importinggoods and services or making foreign investments throughoutthe global economy are faced with an exchange rate riskwhich can have severe financial consequences if not managedappropriately.

Developing a strategy.

Implementation of plans.

4. HEDGING/COMMODITY RISK:

Commodity risk refers to the uncertainties of future marketvalues and of the size of the future income, caused by thefluctuation in the prices ofcommodities.

These commodities may be grains, metals, gas, electricity etc.A commodity enterprise needs to deal with the following kindsof risks:

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Price risk (Risk arising out of adverse movements in theworld prices, exchange rates, basis between local andworld prices)

Quantity risk

Cost risk (Input price risk) Political risk

How to manage commodity risk :

Employing differing tools, employ differing tools.

Plan and budget with a greater accuracy.

Control cost.

Create certainty around fluctuating commodity prices.

Remove the possibility of margin for specific needs associated

with using futures

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2.NON FINANCIAL RISK

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Non-Financial risks would entail all the risk faced by the bank

in its regular workings, i.e. Operational Risk, Strategic Risk,

Funding Risk, Political Risk, and Legal Risk.

A. OPERATIONAL RISK

Always banks live with the risks arising out of human Error,financial fraud and natural disasters. The recent happenings

such as WTC tragedy, Barings debacle etc. has highlighted thepotential losses on account of operational risk.

Exponential growth in the use of technology and increase inglobal financial inter-linkages are the two primary changes thatcontributed to such risks. Operational risk, though defined asany risk that is not categorized as market or credit risk, is therisk of loss arising from inadequate or failed internal processes,people and systems or from external events.

In order to mitigate this, internal control and internal auditSystems are used as the primary means.

Risk education for familiarizing the complex operations.

At all levels of staff can also reduce operational risk.

Insurance cover is one of the important mitigates of operationalrisk.

Operational risk events are associated with weak links ininternal control procedures.

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The key to management of operational risk lies in the banksability to assess its process for vulnerability and establishcontrols as well as safeguards while providing for unanticipatedworst-case scenarios.

Operational risk involves breakdown in internal controls andcorporate governance leading to error, fraud, performancefailure, compromise on the interest of the bank resulting infinancial loss.

OPERATIONAL RISK INCLUDES

INTERNAL FRAUD: Internal fraud refers to a type that is

committed by an individual against an organization.

Internal fraud has following

Unauthorized activity

Transaction not reported

Transaction types unauthorized

Money laundering

Forgery

EXTERNAL FRAUD: External bank fraud is the use potentially

illegal means to obtain money, assets or held by a financial

institution

External fraud has following

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Theft and robbery

Hacking changes

Theft and information

Elder financial abuse

EMPLOYMENT PRACTICE AND WORK PLACE SAFETY:

Occupational safety and healthy is an area concerned with

protecating safety health and welfare of people engaged in

work or employment

Employee relation

Organized labor issue

Employee health and safety rules

Workers comperession

Client, product and business practice:

Breach of privacy

Misuse of confidential information

Aggressive sales

Inadequate product offering

IMPROPER BUSINESS OR MARKET PRACTICE

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Antitrust

Improper trade

Insider trading

Market manipulation

HOW TO MANAGE AN OPERATIONAL RISK :

Internal audit coverage should be adequate to an independent

verify that the frame work.

Bank should develop, implement and maintain a framework

that fully integrates into banks overall risk management

process.

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The board of director should establish approve and periodically

review of the framework.

Senior management should ensure the identification and

assessment of the operational risk inherent in all material.

Product, activities, process and system to make sure the

inherent risk and incentives are well understood.

Inherent risks ae in the new product services of activities.

Bank should have a strong control environment that utilizes

polices, processes and system appropriate risk mitigation and

transfer strategies.

Banks public disclosures should allow stakeholder to assess itsapproach to operational risk management.

B. STRATEGIC RISK MANAGEMENT

What is strategic risk management (SRM)?

Is it the sameas or different from enterprise risk management(ERM)? What kinds of events or risks are strategic risks?

Boards of directors and management teams have been askingthese questions a lot lately.

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One of the lessons many organizations learned from the globalfinancial crisis is that they need to clearly link strategy and riskmanagement and be able to identify and manage risk in ahighly uncertain environment.

Another is that they must focus risk management on creatingvalue as well as protecting value.

C. LEGAL RISK

Legal risk is a risk of loss that results from a counterpartybeing unable to legally enter into a contract.

Another legal risk relates to regulatory risk, i.e., that atransaction could conflict with a regulator's policy or, moregenerally, that legislation might change during the life of afinancial contract.

Assigning Specific responsibilities to the various stakeholders

in the bank, which may include appointing legal risk managers.

Identification of the legal risk universe applicable to the bank.

Implementing controls to mitigate identified legal risks.

Monitoring legal risks.

Reporting on legal risks

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D. POLITICAL RISK

Political risk is a type ofrisk faced by investors, corporations,

and governments.

It is a risk that can be understood and managed with reasonedforesight and investment.

Broadly, political risk refers to the complications businessesand governments may face as a result of what are commonly

referred to as political decisionsor any political change thatalters the expected outcome and value of a given economicaction by changing the probability of achieving businessobjectives Political risk faced by firms can be defined as therisk of a strategic, financial, or personnel loss for a firmbecause of such nonmarket factors as macroeconomic andsocial policies (fiscal, monetary, trade, investment, industrial,income, labour, and developmental), or events related topolitical instability (terrorism, riots, coups, civil war, andinsurrection) Portfolio investors may face similar financial

losses.

Moreover, governments may face complications in their abilityto execute diplomatic, military or other initiatives as a result ofpolitical risk.

How to manage political risk

Stage 1: Identify: An important part of political risk

Identification lies in separating headline hype, or perceived

risk, from real political risk. For example, in India, political

risks vary significantly from state to state Some states have

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had highly publicized conflicts with some foreign companies

but also offer significant investment incentives, such as a

highly educated workforce. The ability to manage political risk

therefore unlocks an investment opportunity.

Stage 2: armed with a very specific set of political riskscenarios, risk managers assess and quantify the impact ofeach scenario on the business.

Stage 3: Manage Once risks have been identified andmeasured, an effective system for active political riskmanagement can be put in place. The first element inmanaging political risks is to map potential risk managementmethods against the priority risk.

E. FUNDING RISK

The standard framework to measure funding liquidity riskcompares expected cumulative cash shortfalls over aparticular time horizon against stock of available fundingsources. This requires assigning cash-flows to future periodsfor financial products with uncertain cashflow timing.

F. PROFIT RISK

Profit risk is a risk management tool that focuses onunderstanding concentrations within the income statementand assessing the risk associated with those concentrationsfrom a net income perspective.

Profit risk is a risk measurement methodology mostappropriate for the financial services industry, in that itcomplements other risk management methodologiescommonly used in the financial services industry

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Reputational RISK

reputation risk, is a risk of loss resulting from damages to afirm's reputation, in lost revenue or destruction ofshareholdervalue, even if the company is not found guilty of a crime.

Reputational risk can be a matter of corporate trust, but servesalso as a tool in crisis prevention.

This type of risk can be informational in nature that may bedifficult to realize financially. Extreme cases may even lead tobankruptcy

3. SCAMS IN INDIAN BANKING SECTOR

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Derivative Scam, 2007-08

In 2007-08 many of the major banks were accused of sellingcurrency derivatives to exporters in an illegal manner. For themost part SMEs, who had very less knowledge about theprobable risks of such instruments, were involved. The overalllosses were anticipated to be over 30, 000 crore.

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The regulatory was taken in the year 2011 by the ReserveBank of India imposing fines starting from 5 to 15 lakhs onnineteen banks for allegedly selling currency derivative

products. Though the penalty was considered to be very lessand was worthless, it resulted into the end of derivative tradefor banks.

2003-05 IPO scam

The 2003-05 IPO scam came into limelight when aninvestigation into Yes Bank IPO found market investor had

unlawfully got shares in the primary market. Some individualshad acquired shares intended for retail candidates usingbenami demat accounts. Same happened with IDFC IPO.

The regulatory action was taken by Sebi, regulator of capitalmarkets.

4. SEVEN TENETS OF RISK MANAGEMENT IN THE BANKINGINDUSTRY

"If a bank is serious about risk management, then it will beserious from the top down. Before we discuss this statementin more detail, lets first look at the events that precipitatedsuch a statement.

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The chain of events that led to the global economic crisis areoutlined in figure 1.

The resulting global economic downturn led to a vicious cycleof companies failing or downsizing, thus leading tounemployment, which further reduced demand for goods andservices. In addition, banks across the globe retrenched and inplace of the liberal lending practices credit tightened across theboard.

Governments stepped in with fiscal supportthe likes of whichhas never been seen in modern recorded history. And now,everyone waits to see what will happen with this never-before-tried experiment of flooding the world markets with governmentmoney.

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What happened? Why did everything turn so bad so fast whenit looked like the good times would go on unabated and itappeared that the very predictable five- and 10-year recessioncycle had been overcome?

Different people like to point fingers at different culprits.

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Some experts put the blame on credit default swap instrumentsthat were sold worldwide with promises of high returns and lowrisk.

Others blame those who promoted mortgage access to peoplewho normally would not qualify for a housing loan. But webelieve that the issue is more fundamental .

The worlds financiers lost sight of the requirement to managerisk effectively and, in many cases, it is questionable if the

basics of risk management were ever put in place.

A Banks Business

The core business of a bank is to manage risk and provide areturn to shareholders in line with the accepted risk profile.

The credit crisis and ensuing global recession seem to indicatethat the banking sector has failed to tend to its core business. Ifit had done so effectively, then credit default swaps would nothave been bought up with so much eagerness.

If the banks had attended to risk management, then there

would not have been the flood on the U.S. market of cheapshort-term interest rate mortgages that led to the so-calledhousing bubble and the ultimate wave of personal bankruptciesand home foreclosures.

A.T. Kearney believes that the framework for risk managementin a bank is fundamentally no different today than it was prior tothe credit crunch and recession.

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Indeed, the risk function lacks a certain business acumen, andcontinues to be considered a handbrake on growth.

Chief economists and their macro perspectives are stilldivorced from the banks own strategy function.

We believe that a return to managing risksnot ignoring themor believing they can be passed offis the cure for the ailment

that has hit the economy so hard.

Let us therefore review what we call The Seven Tenets of RiskManagement to see why the paradigm has neither beenaltered nor fundamentally changed in this new world order.

1. Establish a Language System to Discuss and CategorizeRisk :

A risk manager is overheard at a recent intra-departmentalmeeting: The Basel II second pillar requires that we focus onthe ICAAP, and it is inherent that the board of the bank fulfilltheir obligations in this respect and that sufficient oversight isprovided by the SREP at which point many of theparticipants have no idea what the risk manager is talkingabout, but they are too afraid to ask questions so they nod theirheads in polite agreement and hope no one will ask them fortheir personal opinion.

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This scene is played out all too frequently at many banks. Eachfunction within a bank has its own lingo and acronyms that are

useful in the right format and context.

Take them out of their natural environment and they causeuntold confusion and misunderstandings.

It is incumbent upon risk experts to translate risk issues into a

language and terms that all inter-ested parties can understand,and it is the responsibility of the other functions to make theeffort to understand.

2. Develop a Big Picture View of Risk Exposure and Focuson the Most Important :

Not all risks are created or end equally. Banks need to bemindful of credit, market and operational risks.

Within the three main areas of risk, further stratification isembedded to allow for a comprehensive overall view of risk.

Tools such as VaR (Value at Risk), Monte Carlo simulations,CFaR (Cash Flow at Risk), stress testing and others areapplied to judge the level of risk and subsequently the actionsrequired to contain the risks.

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Yet within banks there is often a lack of tools and sophisticationto keep pace with a rapidly changing set of products.

At any point in time, one or more risk elements may be morerelevant than others, but the bank needs to know its riskframework and monitor developments in real time to providethe right level of attention and action.

As a whole, Canadian banks seem to have fared better thanbanks in other countries.

Canadian banks in general steered away from the creditderivative craze, adopting a more conservative approach asother banks were ambitiously buying the risky instruments.

By taking the big picture view, Canadian banks avoided amajor melt down. According to a report by TD Bank: "Thereappears to be a more risk-averse culture in Canada runningthrough government, the public and banks.

Canadian banks benefited from prudent and disciplined risk-

management practices, and higher capital ratios pre-crisis. Thefact that Canadas major investment banks were part of a largediversified financial services institution also played a role."

3. Centralize Ownership of Process and DecentralizeDecision Making :

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Risk management can be most effective when it is appliedconsistently across the banking organization with policies andprocedures developed by risk experts who have the training andexperience for their specific country, area and client mix.

It is incumbent upon front-line officers to use the tools andprocesses to guide their daily inter-actions with customers.Interactions are clear.

Answers are given in a timely manner and the responses leave

no ambiguity about what the bank is able to do for its customer.

A good example can be drawn from banks in Central Europe pre-and post-privatization.

Prior to privatization and modernization, many banks had adecentralized business model and it was a public secret that thebranch managers made up the rules and profited handsomelyfrom insufficiently transparent business practices.

This led to the failure of many banks in Central Europe.

Post privatization, the banks focused on centralizing keyprocesses around risk and then decentralizing decision makingdown to the branch level, with the knowledge that decisionswould be made within the centrally developed framework; thisprovided safeguards against unwanted risk.

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4. Drive the Process from the Top and Clearly Define Rolesand Responsibilities:

In the lead up to the big bustthe credit crunchbanks werereporting record profits and the leaders were receiving bonusesfor relatively short-term results.

It seemed that everybody wanted in on the big profits and paydays, and little heed was given to people calling for curbing thegrowing risk profiles.

The clear lesson: what the leaders in the organization do, notso much what they say, is what defines an organizationsbehavior.

Risk management in a bank is everyones responsibility, notjust the risk departments.

Leadership must not only espouse a vision but also behave ina manner consistent with it and demonstrate to employees that

prudent risk management is a cornerstone to success.

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5. Quantify Risk Exposure and the Costs and Benefits ofManaging Risks:

The warnings were everywhere, renowned financial expertswere quoted almost every day.

The risks of credit derivatives are not quantified and nobodyreally knows how much is out there and what will happen whencontracts come due.

We know now at least to this point what has happened. Hadindividual organizations been looking appropriately at the risksof purchasing the seemingly too-good-to-be-true derivativeinstruments, perhaps they would not have taken them on withsuch zeal and the problem would have been more contained atthe original source, which was the overheated mortgagemarket in the United States.

Consistent and rigorous assessment of risk and quantificationof the net benefits of appropriately dealing with the risk cannotbe replaced with promises of above-average returns with noknowledge of the potential downsides.

A recent article in Fortune may have said it best whendescribing Blackrock, the large money management company."When instruments get complicated, do your homework.

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In fact, at BlackRock, executives are constantly refining theirmodels to stay one step ahead of the latest funky financialproduct from Wall Street's wizards.

The firms that design securitized products are alwaysconspiring against us with new, increasingly complexinstruments,' explains Rob Goldstein, who oversees BlackRockSolutions, which leases an ultrasophisticated technologyplatform to clients and has a team that helps companiesanalyze and run their portfolios. 'Its our mission to make surethey dont win.' On behalf of the Federal Reserve, BlackRockSolutions is managing troubled assets from AIG and Bear

Stearns."

Even the most sophisticated models will not make anorganization 100 percent foolproof as BlackRock found when itmisjudged the market for commercial mortgage-backedsecurities. Regardless, strong and rigorous analyticalcapabilities will lessen the chance of failure.

6. Embed IT Systems to Facilitate the Risk-ManagementProcess

The value of IT appears to be increasing over time to banking

organizations as the environment grows ever more complexso there is no change in this variable in troubled times.However, the IT value will be realized only if IT systemsdevelopment is driven by user needs and not vice versa.

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IT systems, if properly developed and used, can assist thecompany in risk management by providing control andcompliance monitoring technology, databases, market andindustry research and analysis tools, and communication tools.

These are all critical tools that assist in the delivery of therequired information to decision makers in the bank. This canhappen if the IT systems are developed with the users needsin mind.

7. Embed a Risk-Management Culture If a bank is serious about risk management, then it will be

serious from the top down.

Leadership will espouse a culture of responsible riskmanagement through its behaviors and through the systemsand programs it puts into place.

In the run up to the financial crisis, organizations talked aboutgood risk management; however, few in leadership positionsespoused effective risk management, which is evident in thedismal failures in the financial sector.

A risk-management culture can be embedded in theorganization through training, communications and incentives

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6. Conclusion :

Hence it is depends upon a banking industry whether tomanage accept ignore avoid exploit or reduce the banking risk.

A managing a risk is a tool and technique differs from one bankto another that how they are treat with them and this willdirectly decide the future of bank.

A good risk managing banking industry can easily survive in acompetitive banking area.

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QUESTINARE

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risk management in bank

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