...Bank Risk Types and Trends Marie Tomlinson Rasmussen College Author Note This paper is being submitted on May 19, 2016, for Paula Bolf’s ESUM16-6WS2-ONP-RMI4020-02 Risk Management course. Bank Risk Types and Trends Who has not ever dealt with a Bank? We all have had to deal with a bank at some point in our lives, whether it was opening an account or barrowing money for some sort of a venture. I personally deal with Sun Trust Bank. Sun Trust Bank is based out of Atlanta, Georgia with assets that total one hundred ninety four billion and deposit totals of one hundred fifty two billion. Sun Trusts services that they offer to customers consist of: deposit, credit trust, investment, mortgage, asset management, securities brokerage, and capital market. (http://investors.suntrust.com, pg 1) The risks that Sun Trust Bank has to deal with in a day to day struggle are Compliance, Operational, Financial, and Reputational risk. The risk trends for Sun Trust depend on the market changes daily, as well as barrowers and payments made on time. Risk Mitigation for Sun Trust is controlled through enhanced policies, processes and procedures to manage adequately. The credit risk of Sun Trust would be jolted by interest rates rising or falling, and the customer’s timely pay back of money loaned. Sun Trust lending process is determined by capitalization, as well as solvency and is determined by the economic growth or down swings. (http://www.federalreserve.gov, pg. 1) ...
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...Bank Risks and Risk Factors Abstract The Federal Reserve System has established a banking risk framework that consists of six risk factors: credit, market, operational, liquidity, legal and reputational risks. During examinations, institutions' risk management structures are reviewed using these risk categories. The Federal Reserve Bank of Chicago (Seventh District) supervision group follows current and emerging risk trends on an on-going basis. This Risk Perspectives newsletter is designed to highlight a few current risk topics and some potential risk topics on the horizon for the Seventh District and its supervised financial institutions. The newsletter is not intended as an exhaustive list of the current or potential risk topics and should not be relied upon as such. We encourage each of our supervised financial institutions to remain informed about current and potential risks to its institution. Credit Risk The marketplace for C&I loans is highly competitive. Soft loan demand, the low interest rate environment, and strong market liquidity from banks and investors flush with cash has heightened the level of competition for C&I lending and will continue to make loan growth for our institutions very challenging into 2013. Anecdotally, financial institutions have responded to these dynamics in a number of ways, including: • Granting pricing and structural concessions in order to maintain or potentially grow market share • Increasing leverage tolerance ...
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...RISK MANAGEMENT IN BANKS The business of banking today is synonymous with active risk management than it was ever before. The success and failure of a banking institution heavily depends on the strength of the risk management system in the current environment. This is true as the very business of banking is risk-taking as an intermediary, i.e. interposing between savers (depositor) on one hand and the borrower on the other hand, thereby accepting the risks of intermediation. Risk Management: Meaning & Components A risk can be defined as an unplanned event with financial consequences resulting in loss or reduced earnings. Therefore, a risky proposition is one with potential profit or a looming loss. Risk stems from uncertainty or unpredictability of the future. In commercial and business risk generates profit or loss depending upon the way in which it is managed. Risk can be defined as the volatility of the potential outcome. Risk is the possibility of something adverse happening. Risk management is the process of assessing risk, taking steps to reduce risk to an acceptable level and maintaining that level of risk. The essential components of any risk management system are – * Risk Identification: i.e. the naming and defining of each type of risk associated with a transaction or type of product or service; * Risk Measurement: i.e. the estimation of the size, probability and timing of potential loss under various scenarios; * Risk Control: i.e....
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...Executive Summary Eastern Bank’s tagline is “Simple Math”. But it is not so simple to serve the borrowers with the right package. A bank’s major liability is to deliver significant returns to their depositors. Unlike returns to shareholders, this return is promised. Unless delivered, depositors may take back the return with a vengeance; bankrupting the bank in the process. The banks developed various form of debtor selection processes to protect themselves against depositors grudge, i.e. delinquency of borrowers. CRG (Credit Risk Grading) and CRR (Credit Risk Rating) together makes one of those processes. This report is titled “Predicting Delinquency of EBL’s Corporate Customers.” EBL is one of the leading private commercial banks of Bangladesh. After starting its operation in 1992, the bank established itself as one of the most technologically advanced banks of the country. EBL has been offering diverse portfolio of products to its customer. CRG process is a borrower selection process advised by Bangladesh Bank. Private commercial banks in Bangladesh use CRG to predict the possibility of delinquency in the form of CRR. EBL uses the same process. This report first develops a model to test the CRR against financial data of a firm. Data obtained from 35 borrowers of EBL were used to run a linear regression taking CRR ratings of respective firms as dependent variable. Running the regression, the model shows that CRR of a firm does not reflect the firm’s financial data properly...
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...business of accepting risk. Primary aims of any financial services firm are collect and manage risks on behalf of their customers and make a profit for its shareholders. We may define ‘Risks’ as uncertainties resulting in adverse outcome, adverse in relation to planned objective or expectations. In the financial arena, enterprise risks can be broadly categorized as credit risk, operational risk, market risk and other risk. Credit risk is the oldest and important risk which banks exposure and important of credit risk and credit risk management are increasing with time because of some reasons like economic crises and stagnation, company bankruptcies, infraction of rules in company accounting and audits, growth of off-balance sheet derivatives, declining and volatile values of collateral, borrowing more easily of small firms, financial globalisation and BIS risk-based capital requirements. Credit risk can be defined as the risk of losses caused by the default of borrowers. Default occurs when a borrower can not meet his financial obligations. Credit risk can alternatively be defined as the risk that a borrower deteriorates in credit quality. This definition also includes the default of the borrower as the most extreme deterioration in credit quality. Credit risk is managed at both the transaction and portfolio levels. But, banks increasingly measure and manage the credit risk on a portfolio basis instead of on a loan-by-loan. In credit risk management banks use various methods such...
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...Center Commercial Bank Risk Management: an Analysis of the Process by Anthony M. Santomero 95-11-C THE WHARTON FINANCIAL INSTITUTIONS CENTER The Wharton Financial Institutions Center provides a multi-disciplinary research approach to the problems and opportunities facing the financial services industry in its search for competitive excellence. The Center's research focuses on the issues related to managing risk at the firm level as well as ways to improve productivity and performance. The Center fosters the development of a community of faculty, visiting scholars and Ph.D. candidates whose research interests complement and support the mission of the Center. The Center works closely with industry executives and practitioners to ensure that its research is informed by the operating realities and competitive demands facing industry participants as they pursue competitive excellence. Copies of the working papers summarized here are available from the Center. If you would like to learn more about the Center or become a member of our research community, please let us know of your interest. Anthony M. Santomero Director The Working Paper Series is made possible by a generous grant from the Alfred P. Sloan Foundation Commercial Bank Risk Management: An Analysis of the Process 1 This Version: February 28, 1997 Abstract: Throughout the past year, on-site visits to financial service firms were conducted to review and evaluate their financial risk management systems...
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...however other commercial banks are exposed to big challenge and face many risks like credit and liquidity risk. Given this situation, APRA outlines the regulations to ensure and consolidate the safety for Australian banking system, such as Liquidity and Credit quality. This report will analyse the difference between credit risk and liquidity risk at the beginning, then the regulations from APRA in terms of credit risk for the major and smaller banks will be discussed. Next, there will be 3 ratios of credit risk of the “big four” contrast to a major commercial bank in the UK. This report will be end with evaluating the credit risk of 5 major banks and give some findings are regarding with the credit risk of 5 banks. 1. Explain the difference between credit risk and liquidity risk for a bank. 1.1 Credit risk Credit risk is the risk that the promised cash flows from loans and securities held by FIs may not be paid in full (Lange & Saunders, 2013). Normally, all financial institutions have probability to face this risk. However, if borrowed principal is paid on maturity and interest payments are paid on the due date, FIs can eliminate credit risk. Additionally, credit risk can be subdivided into firm-specific credit risk and systematic credit risk. Firm-specific credit risk affects a particular company and can be eliminated by good diversification, while systematic credit risk involves macroeconomic. 1.2 Liquidity risk Liquidity risk is the risk that a sudden surge in...
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...Internship Report On Credit Risk Management: A Study On Sonali Bank Ltd. Supervised By: Shahidul Islam Lecturer Department of Marketing Comilla University Prepared By: Mahmudul Hasan ID – 0807031 Session- 2008-2009 3rd Batch Date: 20th January,2014 Department of Marketing Comilla University Table of Contents Contents Page no. Letter of Transmittal Letter of Authorization Acknowledge Executive Summery Chapter- 01 Introduction Background of the study Problem Statement Objective of the Study Chapter- 02 Literature Review Overview of Sonali Bank Ltd Overview of Credit Risk Management Literature Review: A Theoretical Framework Chapter- 03 Methodology Sources of Data Chapter- 04 Data Analysis & Findings Diagrammatic Analysis SWOT Analysis Findings Conclusions & Recommendations Internship Experiences References Letter of Transmittal 20th January, 2014 Shahidul Islam Lecturer Department of Marketing University of Comilla Sub: Submission of Internship Report entitled “Credit Risk Management : A Study On Sonali Bank Limited. Dear Sir, I am pleased to submit this internship report as you entitled me. I tried my best to present this internship report on Credit Risk Management: A Case Study On Sonali Bank Limited, Agrabad Corporate Branch, Chittagong, according to your...
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...INTERNSHIP REPORT ON CREDIT RISK MANAGEMENT OF DHAKA BANK LIMTED [pic] EXCELLENCE IN BANKING DEPARTMENT OF FINANCE & BANKING UNIVERSITY OF CHITTAGONG CHITTAGONG. CREDIT RISK MANAGEMENT OF Preface The banking sector of Bangladesh is dominated by commercial banks with huge debt burdens. Inefficiency in loan sanctioning, expansion of preferential loans, and poor classification and administration of loans has led to the slow recovery of credit extended by the banks. To restore efficiency and accountability in this sector, an effective credit risk management system is necessary. To manage credit risk efficiently Bangladesh Bank has provided a guideline for CRM. Besides, Basel Committee on Banking Supervision has set a guideline on Sound credit risk assessment and valuation for loan in order to encourage banking supervisors globally to promote sound practices for managing credit risk. This paper presents a comparative picture of credit risk management of Dhaka Bank Limited with Bangladesh Bank’s guidelines and Basel Committee for Banking Supervision’s (BCBS) guideline regarding Credit Risk Management. This report also provides an overview of the Credit Risk Management of DBL. In this report DBL’s credit risk management system is analyzed into three sections. First of all the policy guidelines have been analyzed and compared with Bangladesh bank’s guideline. After that the organizational structure & responsibilities have been analyzed...
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...and Risk-taking in Pre-crisis Investment Banks Nemanja Radić, Franco Fiordelisi, Claudia Girardone Working Paper Series No 08/11 Efficiency and risk-taking in pre-crisis investment banks Nemanja Radić1, Franco Fiordelisi2, Claudia Girardone3 Abstract Investment banks’ core functions expose them to a wide array of risks. This paper analyses cost and profit efficiency for a sample of investment banks for the G7 countries (Canada, France, Germany, Italy, Japan, UK and US) and Switzerland prior to the recent financial crisis. We follow Coelli et al. (1999)’s methodology to adjust the estimated cost and profit efficiency scores for environmental influences including key banks’ risks, bank- and industry specific factors and macroeconomic conditions. Our evidence suggests that failing to account for environmental factors can considerably bias the efficiency scores for investment banks. Specifically, bank-risk taking factors (including liquidity and capital risk exposures) are found particularly important to accurately assess profit efficiency: i.e. profit efficiency estimates are consistently underestimated without accounting for bank risktaking. Interestingly, our evidence suggests that size matters for both cost and profit efficiency, however this does not imply that more concentrated markets are more efficient. JEL classification: D2, G24, G32, L25 Key words: Investment Banking;Stochastic Frontier Analysis; Efficiency; Environmental Conditions; Banking Risks. ...
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...CREDIT RISK ANALYSIS SYSTEM OF STANDARD CHARTERED BANK by Abdullah Bin Haroon ID: 2003210001013 An Internship Report Presented in Partial Fulfillment Of the Requirements for the Bachelor of Business Administration SOUTHEAST UNIVERSITY, BANGLADESH October 2005 TABLE OF CONTENTS Page LIST OF TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii LIST OF FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix CHAPTER 1 INTRODUCTION 1.1 Origin of the report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4. Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5. Methodology 1. Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Primary source . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Secondary source . . . . . . . . . . . . . . . . . . . . . . . . 3 4. Sample Information. . . . . . . . . . . . . . . . . . . . . . . 3 5. Data Collection Method. . . . . . . . . . . . . . . . . . . . 3 6. Data Analysis. . . . . . . . . ...
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...CREDIT RISK ANALYSIS SYSTEM OF STANDARD CHARTERED BANK by Abdullah Bin Haroon ID: 2003210001013 An Internship Report Presented in Partial Fulfillment Of the Requirements for the Bachelor of Business Administration SOUTHEAST UNIVERSITY, BANGLADESH October 2005 TABLE OF CONTENTS Page LIST OF TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii LIST OF FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix CHAPTER 1 INTRODUCTION 1.1 Origin of the report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4. Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5. Methodology 1. Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Primary source . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Secondary source . . . . . . . . . . . . . . . . . . . . . . . . 3 4. Sample Information. . . . . . . . . . . . . . . . . . . . . . . 3 5. Data Collection Method. . . . . . . . . . . . . . . . . . . . 3 6. Data Analysis. . . . . . . . . ...
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...CREDIT RISK ANALYSIS SYSTEM OF STANDARD CHARTERED BANK by Abdullah Bin Haroon ID: 2003210001013 An Internship Report Presented in Partial Fulfillment Of the Requirements for the Bachelor of Business Administration SOUTHEAST UNIVERSITY, BANGLADESH October 2005 TABLE OF CONTENTS Page LIST OF TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii LIST OF FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix CHAPTER 1 INTRODUCTION 1.1 Origin of the report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.3 Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4. Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5. Methodology 1. Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Primary source . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Secondary source . . . . . . . . . . . . . . . . . . . . . . . . 3 4. Sample Information. . . . . . . . . . . . . . . . . . . . . . . 3 5. Data Collection Method. . . . . . . . . . . . . . . . . . . . 3 6. Data Analysis. . . . . . . . . ...
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...Assessing the risk, return and efficiency of banks’ loans portfolios ∗ Javier Menc´ ıa Bank of Spain June 2008 Preliminary and Incomplete Abstract This paper develops a dynamic model to assess the risk and profitability of loans portfolios. I obtain their risk premia and derive the risk-neutral measure for an exponentially affine stochastic discount factor. I employ mean-variance analysis with a VaR constraint to assess efficiency. Then I compare Spanish institutions in an empirical application, where small institutions seem to be less efficient than large ones on aggregate terms, while commercial and savings banks perform better on their respective traditional markets. Finally, I find increasing discrepancies between riskneutral and actual default probabilities since June 2007 and discuss their possible sources. Keywords: Credit risk, Probability of default, Asset Pricing, Mean-Variance allocation, Stochastic Discount Factor, Value at Risk. JEL: G21, G12, G11, C32, D81, G28. This paper is the sole responsibility of its author. The views represented here do not necessarily reflect those of the Bank of Spain. Thanks are due to Alfredo Mart´ for his valuable suggestions as well as for ın, help with the interest rate database. Of course, the usual caveat applies. Address for correspondence: Alcal´ 48, E-28014 Madrid, Spain, tel: +34 91 338 5414, fax: +34 91 338 6102. a ∗ 1 Introduction Standard capital market theory states that there is a risk-return tradeoff in equilib- ...
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...ADEQUACY FRAMEWORK AND RISK MANAGEMENT IN BANKS GUEST LECTURE: MR. R M PATTANAIK EX GM- INDIAN OVERSEAS BANK CAPITAL ADEQUACY RATIO (CAR) Also known as Capital to Risk (Weighted) Assets Ratio (CRAR) is the ratio of a bank’s capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory capital requirements. It is a measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures. This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors. CAR= Capital funds/ Total risk weighted assets (TRWA) WHAT IS RISK? Risk is the possibility of suffering a loss which is UNEXPECTED, UNFORSEEN and UNCERTAIN. Expected losses can be managed and covered by “Provisions” like Loan loss or NPA provisions, Provision for depreciation and investments etc. However, unexpected losses can be taken care by maintaining adequate capital. The capital acts as cushion or shock absorber for the bank in times of unforeseen losses. RISK MANAGEMENT Whatever activities you undertake there is a certain degree of risk associated with it. This risk however can be managed...
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