Understanding Bank Risk Management
by Arthur L. GRC analystRisk management is a preventive effort to avoid instability in the business. Even so, there is still resistance to adopt this procedure. One of the justifications is the lack of corporate culture, which is an obstacle to be overcome.
To start changing this scenario, it is necessary to adopt 3 attitudes:
establishment of processes
process mapping
identification of rules that must be followed
Each of these elements is complemented by the work of the other, because they must all have the same focus. However, it is necessary to have an integrated work from several areas, carry out an audit to confirm good practices and adjust what is necessary, in addition to following the international standard.
This is only achieved when managers understand the processes and know the risks inherent in these activities. In this way, the current market paradigm is modified, which is to work in a corrective, not preventive manner.
What should happen is to work with bank risk management to choose prevention. This action is based on 3 steps:
Identification and classification
This stage provides for the definition of internal and external events that can influence business and banking operations. The risk must be classified and continuously monitored and improved for its prevention.
Evaluation
The definition of the treatment provided to the risk involves determining the potential of its effect, that is, the degree of exposure of the bank to that threat. This is also the time to analyse the probabilities of loss and the impact on the financial institution.
Treatment
At that time, you can either avoid or accept the risk. In the first case, the decision is taken not to get involved and in the second, the person acts in a way to get out of the risk situation:
In the second situation, there are 4 options:
retain - maintain risk at the current level of probability and impact
reduce - take action to reduce the likelihood and / or the impact of risk
transfer - take action to lessen the impact and / or the likelihood of the risk occurring through transfer
explore - raise the level of risk exposure in order to try to gain competitive advantage
These attitudes must be taken according to each case. This depends a lot on the daily operations and the characteristics of the situations.
What are the risks when managing banking operations?
This specific situation has 5 main risks to which the financial institution is exposed.
Credit risk
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Created on Mar 30th 2020 06:49. Viewed 364 times.