Risks Faced By Financial Institutions

The idea of “risk” is used in many fields and industries. There has been large efforts made towards the understanding of risk. Since, risk varies so much depending on the field of study, the need for learning about it is warranted. As can be imagined, the importance of risk in a market economy is crucial. In the 1990s, JP Morgan made the Value at Risk (VaR) a central component of its work efforts (Cecilia-Nicoleta, Anne-Marie, & Carmen-Maria, 2011).

Cernauskas, D., & Tarantino, A. (2011). Essentials of Risk Management in Finance. Hoboken: John Wiley & Sons, Inc.

Credit risk is the risk that the bank will not be able to repay funds when they ask for them.

For many people risk is an accepted part of everyday life. Every day activities such as catching the bus, travelling on holiday, playing football, setting up home and starting a family all carry some element of risk.

We are all familiar with risk. In fact, it is a key component in our everyday material life and we often manage it automatically either when dealing with mundane tasks or major hazards.

Financial risk is the possibility that the company's cash flow proves inadequate to meet its financial obligations. It is also the term for many different types of risks related to the finance industry. There are many types of financial risks. The most common ones include credit risk, liquidity risk, asset backed risk, foreign investment risk, equity risk and currency risk.

Every day of our daily lives we are exposed to a large variety of risks. Those risks can include large financial losses that may occur from investing in the stock market, to damage to your vehicle while driving to work, or fire damaged to your property while on vacation. All those unforeseen events can have the ability to drain all your financial resources, which can cause some major damage to your financial goals and stability. Personal risk management is important because it helps reduce and sometimes eliminate those potential risks. By managing and assessing risks we can alleviate potential financial losses and ensures that our way of life can remain unaffected by those unforeseen events. (Personal Risk Management, 2016). Together there are five risk management steps that are combined to deliver a simple and effective risk management process. Those steps include identifying the risk, analyzing the risk, evaluating and ranking, treating the risk and finally monitoring and reviewing the risk while implementing changes as needed (Schurr, 2016)

The instances of dangerous type of risk taking according to the standards of SEC and/or CFTC can be anticipated in troubled banks. Bruche and Lobet (2011) and Diamond and Rajan (2011) claim that

Within any investment there is a certain amount of risk, which must be taken into account by an investor when deciding to invest. Risk is defined as the chance of financial loss or, more formally the variability of returns associated with a given asset. (Gitman, et al., 2011, p. 208)

The successful management of financial institutions (FIs) demands an understanding of the relevant structures, operations, and the associated risks. In particular, the assessment of the risks is necessary to make the appropriate steps to maintain the solvency of FIs (Saunders & Cornett, 2007). One of the steps involves the application of off-balance sheet (OBS) activities. OBS refers to the properties of the FI which are considered assets, but which do not feature in the balance sheets and thus are not used in balancing the ledger (at most, they may appear at the bottom of the balance sheet). OBSs are extremely useful since they often assist in leveraging the commercial banks in times of crisis, especially when the financial markets are

Financial world is full of volatile market movements which expose any investor to tribulations that can lead to wipe away of huge amount of invested capital. Global Economy has seen great depressions including that of Mortgage crisis in 2008 that led to millions of job being lost and investors losing confidence in market. There is a saying in financial world that ‘an individual is rewarded for the amount of risk they take while investments’. There exists variety of people with diversified mentality when it comes to investing. Some are risk averse while others are risk loving. People’s attitude towards risk are characteristic to their investment behaviour. According to Economic times. Risk management refers to process of identifying risk in

Risk management is an activity which integrates recognition of risk, risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources. Some traditional risk managements are focused on risks stemming from physical or legal causes (e.g. natural disasters or fires, accidents, death). Financial risk management, on the other hand, focuses on risks that can be managed using traded financial instruments. Objective of risk management is

Similar to other financial institutions and firms, SunTrust also faces a myriad of risks. Chief among these risks is financial mismanagement and gross misconduct by its staff. After the financial crisis, the bank admitted that it had mismanaged the risks that are associated with credit for mortgage financing (Nikravan par. 2). This mismanagement saw the bank become part of the many institutions which set the stage for the financial crisis by lending credit to individuals whose credit-worthiness was in question. The bank’s senior executives admitted that there existed flaws in the bank’s systems which precipitated the financial crisis. This risk is one that the firm has been trying to tackle through elaborate measures. For

In their research study, Souder & Myles (2010) identify that risk is chiefly fundamental to investing. Böhringer & Löschel (2008) further add that there is no discussion of returns or performance that is deemed meaningful in the absence of at least some mention of the involved risk. However, the trouble for investors, who have just entered into the marketplace, involves the process of figuring where risk really lies, as well as what the difference between the various levels of risks. Relating to the manner, in which risk is fundamental to investments, a significant number of new

As children, every time we would be taught something new, we would always ask a very important question, “why?’. We used to be very curious about why specific things happen, and why things in life are the way they are. Somehow, along the way, we stopped asking why. We stopped wondering about the reasons behind everything and started accepting everything as it was told to us. This essay will once again raise the question that we should all be asking; it will make us understand more about who is ultimately in charge of the entire decision making process in America today. For example, when you go to your bank, and they give you a set of rules and guidelines that they are committed to, don’t you wonder who set these rules? We just live our