The Impact of Effective Credit Risk Management on Bank Survival

The industry that I have chosen to analyze for this paper in the banking industry. The companies which I have selected to analyze are Bank of America & Southeastern Bank. Bank of America will represent as the example for the company who has acquired and merged with other banks, and Fresno Southeastern Bank will act as the example for the bank who has never merged with a larger bank in any form or has been acquired. Both these banks offer similar products to their customers, for checking and savings accounts to home and car loans. They both offer investment products as well. Bank of America has a lot more products on a larger scale due to the size of their company, and the mergers they have made over their history. They operate worldwide

Financial institution has been considered by most people to have no other objective than creation of wealth. The performance of financial institution is therefore measured solely on the basis of their ability and capacity to maximize financial assets. To get to this height, financial institutions generally have long defended the confidentiality of the information pertinent to their business, be it the information about their clients, sources and destination of economic resources that they handle, their credit giving policies and procedures, other

The Global Banking Financial Crisis 's and Its Impact on Developing Nations: Case Study Africa

Credit risk is defined by JPM as “the risk of loss arising from the default of a customer, client or counterparty (2014 annual report, pg. 110)”. This fairly broad definition encompasses large corporate clients, institutional clients and individual consumers. In addition, JPM identified that the primary drivers of credit risk arise from (1) residential real estate, (2) credit card, (3) auto loans, (4) business banking and (5) student lending businesses.

The financial instability of the past few years has provided important evidence that can be used for the detection of dangerous flaws in the international banking system. After the financial crisis of 2008- 2009, the Basel Committee on Banking Supervision made significant steps in improving understanding the key supervisory issues and improvement of banking regulation worldwide. Subsequently, new standards were created for banking system regulation, which represents upgraded capital requirements, liquidity norms, and additional monitoring tools for banking supervision and regulation. These standards were first established in 2009 by the BCBS though some of the Committee’s proposals remain currently open for discussion.

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

Since the adoption of the multi-currency regime, Zimbabwean financial institutions have increasingly been facing challenges associated with

A common saying tied to many new endeavors, “Without risk, there is no reward”. Financial institutions are no exception to this rule. The major risks that all financial institutions are exposed to are credit risk, liquidity risk, operational risk, market risk, business risk, reputational risk, systemic risk, and moral hazard (Perez, 2014). Of these top eight scenarios, credit, market, and operational risks are the three major risk factors that Jeanne D’Arc is focused on mitigating during and following the business service project.

Problems of risk management are very much on the agenda in banking and finance. There is a

our work. We would like to thank Andreas Hagberg, PhD Candidate, as well for giving us his

List of abbreviations List of tables Acknowledgements Abstract 1. 2. 3. 4. 5. 6. 7. 8. Introduction Problem statement Objectives and hypothesis of the study Literature review Structure and performance of the financial sector in

The urgency of proper credit risk management for wellbeing of the banks has inspired me to check whether the risk management practices of the banks have created the situation

In order to evaluate the specialness of banks, it is important to look at the evolution of banks over the period of time and how there has been a shift in the structure of the industry with the entry of non-bank financial institutions. Discussed in depth will be the various conflicting theories of banking behaviour that have been presented in the past, to arrive at the conclusion that attributing ‘specialness’ to banks is contingent

While the term ‘bank resolution’ is a relatively recently engineered concept, various references and forms of it have developed over the last decade. The BCBS Supervisory Guidance on Dealing with Weak Banks, 2002 refers in detail to the characteristics of a weak bank and the various methods of dealing with them, including bank resolution. While this Guidance Paper refers to bank resolution as restructuring or closure of a weak bank, the IMF paper on Managing Systemic Banking Crises, 2003, refers to bank resolution as the intervention or takeover of insolvent or non-viable institutions by the authorities. Almost ten years later, after the experiences of the financial crisis, the definition of bank resolution has narrowed down to the special arrangements for banks that are failing or likely to fail. This more niche definition is utilized in post-financial crisis context, since earlier intervention (i.e. prior to the state of insolvency of a bank) is necessary to avoid greater systemic damage to the financial system. Bank resolution has now evolved to a more specific intervention mechanism where authorities identify problem banks before they become insolvent and take action to restore the bank to viability to prevent financial instability.

Credit risk is the possibility that the actual return on an investment or loan extended will deviate from that, which was expected (Conford, 2000). Coyle (2000) defines credit risk as losses from the refusal or inability of credit customers to pay what is owed in full and on time. The main sources of credit risk include, limited institutional capacity, inappropriate credit policies, volatile interest rates, poor management, inappropriate laws, low capital and liquidity levels, directed lending, massive licensing of banks, poor loan underwriting, reckless lending, poor credit assessment., no non-executive directors, poor loan underwriting, laxity in credit assessment, poor lending practices, government interference and inadequate supervision by the central bank. To minimize these risks, it is necessary for the