What are the main risks faced by international banks, and why do banks need to manage these risks? Select any ONE of your cited risks and explain how banks manage that risk.

The main risks faced by international banks

In today 's environment of intense competitive pressures , volatile economic conditions , rising bankruptcies , and increasing levels of consumer and commercial debt , bank 's ability to effectively monitor and manage its risks can mean the difference between success and survival

Good risk management and control lie at the heart of any business particularly a financial services firm - they are integral parts of providing consistent , high-quality returns to shareholders . If banks fail to adequately manage and control the risks they may suffer significant financial losses . Potentially

more important is the resultant damage to bank 's reputation , which could undermine bank 's share price by reducing client base and impairing ability to retain talented employees (Crouhy , 4-10

Today 's financial institutions need a comprehensive solution to assess identify , measure , monitor , control , and report on losses resulting from inadequate or failed internal processes , people or systems

Nowadays there are four main types of risks faced by the banks these are credit risks , liquidity risks , market risks and operational risks

Credit risk is risk due to uncertainty in counterparty 's ability to meet its obligations . Because there are many types of counterparties - from individuals to sovereign governments to and many different types of obligations , from auto loans to derivatives transactions to credit risk takes many forms . Institutions manage it in different ways

The problem of measuring and managing the credit risk of borrowers and business counterparties has been around since the dawn of commerce . In recent years , there have been many advances in the theory and practice of measuring credit risk . Furthermore , the creation of derivative securities , such as credit default swaps , has led to much-improved credit risk mitigation techniques (Skora , 29-35

For loans to individuals or small businesses , credit quality is typically assessed through a process of credit scoring . Prior to extending credit , a bank or other lender will obtain information about the party requesting a loan . In the case of a bank issuing credit cards this might include the party 's annual income , existing debts , whether they rent or own a home , etc . A standard formula is applied to the information to produce a number , which is called a credit score . Based upon the credit score , the lending institution will decide whether or not to extend credit . The process is formulaic and highly standardized (Crouhy , 29

Many banks , investment managers and insurance companies hire their own credit analysts who prepare credit ratings for internal use . Other firms , including Standard Poor 's , Moody 's and Fitch are in the business of developing credit ratings for use by investors or other third parties . Institutions that have publicly traded debt hire one or more of them to prepare credit ratings for their debt . Credit ratings published by Moody 's , Standard and Poor 's and Fitch IBCA are meant to capture and categorize credit risk (Skora

But institutional investors in corporate bonds often supplement these agency ratings with their own credit analysis . Many tools can be used to analyze and...