Paper Topic:

Risk management

Risk Management

[Name of the writer appears here]

[Name of the institution appears here]

WHAT IS RISK

Risk can be defined as a negative impact or consequence likely to arise from a future happening or event . Consequences of uncertain situations often constitute a risk . In everyday terminology , risk is often used to denote the likelihood or probability of a loss to occur . In quantifiable terms , Risks are usually defined by the negative effect on the profitability of several different sources of uncertainty . The kinds and degree of risks an organization

is likely to confront , depend upon a number of pre-requisites such as its size , complexity business activities , volume etc , however it is assumed that in general the banks face Credit , Market , Liquidity , Operational , Compliance / legal regulatory and reputation risks . Before delving deep into these risk types , some basics about risk management and some risk management principles to be followed in banking organizations are given below

RISK MANAGEMENT

The idea of risk management has been defined as the process of defining and analyzing risks , and then deciding on the appropriate course of action in to minimize these risks , whilst still achieving business goals (Chief Executive Officer , 2008

Risk management is an organized and planned methodology in to manage uncertainty regarding a threat , through a series of human activities involving : risk assessment , development of different strategies to manage risk , and alleviation of risk by means of various managerial resources . Such strategies incorporate transfer of risk to another party , aversion of risk , mitigation of the negative impact of risk , and acceptance of some or all the consequences of any specific risk

Risk management is a principle operating at the basis of every financial institute and embraces all the activities that are likely to influence its risk pro . It includes identification , measurement , monitoring and controlling risk to assure that

The individuals , who undertake or administer risks , clearly understand it

The risk exposure of the organization is within the limits decided by the Board of Directors

The decisions regarding risk taking are in line with the objectives and strategic planning by the BOD

Risk taking decisions are open , clear and explicit

Enough capital is available as buffer against taking risks (Crouhy et al , 2000

Few traditional risk managements are based on risks arising out of legal or physical causes (e .g . natural calamities or accidents , fires lawsuits and death . Whereas Financial Risk management , is based on risks that can be controlled by means of traded financial instruments The financial risk acceptance and management is intrinsic to the industry of banking and banks ' roles as financial mediators . Risk management as assumed generally , does not mean minimizing risks . In fact the ultimate goal of risk management is to maximize risk-reward trade-off

Despite the fact that taking risks is an integral practice in banking sector , it should however be recognized that an institute need not engage in a business which culminates into unnecessary imposition of risk upon it . Also it should not absorb risk which can...

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