Risk Management : Global Banking Crisis

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“Risk is defined as the potential of losing or gaining something of important value. Values can be gained or lost when taking risk resulting from a given action or inaction, foreseen or unforeseen” (Kungwani, 2014 ). Some argue that this simple definition was not understood until 2008, in which the global banking crisis cried out a global need for stringent risk management practices to be put in place across all organization not matter how big or small they may be. A strong, healthy and resilient banking system is key to economic prosperity, progress and development as banks are often at the forefront between investors and savers. However, in 2008 the once resilient banking system came to a great tumbling collapse due several key failures…show more content…
Commercial banks, insurance companies and financial institutions alike are operating in the business of risk on a daily basis. In the process of providing complex financial services to clients across the world, they are accustomed to various types of risks. Due to this it is vitally important that institutions operating in this line of business manage their operations effectively and efficiently. Before we critically examine the various risks which financial institutions face, it is important that we define what risk management comprises of, in order to help gain a better understanding of the topics that we will be analyzing. “Risk management is an activity which integrates recognition of risk, risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources” (Berg, 2010, June). Now we have a definition of risk management, we can begin to look at the first of several risks which financial institutions face. Firstly, operational risk is a risk that all organizations face, but more so for financial institutions due to the nature of their day-to-day activities. Operational risk can be defined through the banking operational risk frameworks commonly referred to as the Basel frameworks: “Basel II defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events” (BCBS, 2006). Some categories of operational risk which the banking sector
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