Any profit-maximising business, including banks, must deal with macroeconomic risks, such as the effects of inflation or recession and microeconomic risks like new competitive threats. Breakdowns in technology, commercial failure of a supplier or customer, political interference or a natural disaster are additional potential risks all firms face. However, banks also confront a number of risks a typical of non-financial firms.
It was argued that banks perform intermediary and payment functions that distinguish them from other businesses. The core product is intermediation between those with surplus liquidity, who make deposits, and those in need of liquidity, who borrow from the bank. The payments system facilitates the intermediary role of banks. For banks where intermediation is the principal function, risk management consists largely of good asset–liability management (ALM) – in the post-war period, right up to the early 1980s, whole books were devoted to ALM techniques.
The role of banks in the financial system changed substantially from the late 1970s on wards. The bank environment was relatively stable and characterised by close regulation; rules which limited the scope of operations and risk; cartel-like behaviour which kept competition to a minimum, and given steady, if not spectacular returns, little incentive to innovate. In most developed countries during the 1980s, regulatory reforms and innovation broke down barriers in financial markets and eliminated the high degree of segmentation, which in turn, increased competition. Japan was the notable exception. The 1990s saw the continued demarcation of financial markets which had begun in the 1980s, and banks faced new risks to manage as a result of continued disintermediation, innovation and greater competition, especially in wholesale markets, where globalisation further eroded barriers.
The movement of banks into new areas of off-balance sheet banking, such as the switch from interest income generating sources to non-interest income activities, was discussed.
Credit risk, the risk that a borrower defaults on a bank loan, is the risk usually associated with banks, because of the lending side of the intermediary function. It continues to be central to good risk management because most bank failures are linked to a high ratio of non-performing loans to total loans. However, as banks become more complex organisations, offering more fee-based financial services and using relatively new financial instruments, other types of financial risk have been unbundled and made more transparent.
The purpose of this one is to outline the key financial risks modern banks are exposed to, and to consider how these risks should be managed.
Modern Banking Related Tutorials
|The Mystery of Banking Tutorial|
Modern Banking Related Interview Questions
|Accounts Interview Questions||Modern Banking Interview Questions|
|Banking Interview Questions||Mortgage bank Interview Questions|
|Bank Clerk Interview Questions||Banking Operations Interview Questions|
|HDFC Bank Interview Questions||IBPS Bank PO and Clerk Interview Questions|
|Syndicate Bank Interview Questions||Investment Banking Interview Questions|
|Citi Bank Interview Questions||Bank Branch Manager Interview Questions|
|ICICI Bank Interview Questions||Reserve Bank of India (RBI) Interview Questions|
|Tamilnad Mercantile Bank Interview Questions|
Modern Banking Tutorial
What Are Banks And What Do They Do?
Diversification Of Banking Activities
Management Of Risks In Banking
Global Regulation Of Banks
Bank Structure And Regulation : Uk, Usa, Japan, Eu
Banking In Emerging Economies
Competitive Issues In Banking
All rights reserved © 2018 Wisdom IT Services India Pvt. Ltd
Wisdomjobs.com is one of the best job search sites in India.