Risk Management at Wellfleet Bank
The credit risk is one of the risk facing by Wellfleet Bank owning an important portfolio of debts. This risk is common to most of banks in a position of borrower or counter party in a loan agreement. Nevertheless, we can relativized on the fact that until recently, their credit risk has been well managed involving a positive counter performance in the turmoil of the global financial crisis of 2007 compare to others competitors.
The fact is that the bank is growing aggressively their corporate finance area. Work load is well more important than expected and this situation may occur some negative consequences due to credit applications which might be made in a rush. Less time per application involve pressure on risk officer and managers who might do not fully examine each of them. Moreover, a large number of credit application approved can result in a Liquidity Risk when banks get too small amount of cash and cannot meet payment obligations for depositors or to lend.
We can noticed that relationship managers “bring everything in from the street. On one side, such situations are positive and bring more clients to the bank but on the other side such situations are negative and might bring “too much” potential clients to the bank which would be denied. A certain level of denied credit application might have some social and ethical consequences. Applicants might do not understand the reject of their application after being “attracted” by a relationship manager. This is known as Operational Risk, a potential breakdown in internal procedures, systems or people. We can add that relationship managers have variable compensation on application granted that they prepared themselves. In other words, they have a significant interest that any application are successfully granted. This situation involve a risk to pushing pressure on risk officers in order to accept more applications faster.
Moreover, the organisation of Wellfleet Bank create an independence of the risk management functions which might generate less communication in the risk department, might also involve some additional risks in operations and some social implications as conflict and tension rising between functions. These functions do not even have the same requirement like the industry concentration limit up to 8% of risk weighted assets in one risk function where the limit would be up to 13% with another regulators.
All these kind of risks are related to Reputational Risk. Strong values are represented by Wellfleet Bank due to an important internal control and a strong compliance standards. The reputation has permitted the bank to increase their client’s portfolio thanks to the public’s trust on safety and regulation, moreover in emerging markets. If the bank, have some of the operational risk noticed above the reputation might bring some ethical issues and tarnish the reputation of the bank.
Wellfleet Bank is operating in 78 countries and therefore experienced an important country risk due to some potential instability in some of them. The company is also based in London and might know some Regulatory Risk. The bank is supposed to follow an important set of regulatory and governance standard. Therefore, any change in the future like we have seen with evolution of BASEL II in the past, might involve some negative implication, social, ethical and financial. People trust in Wellfleet Bank due to its strong regulatory position so if they cannot follow the regulation, they might have penalties and will lose people trust.
Possible losses from some movements in the market prices might also occur which is represent by the Market Risk. In this situation Interest rate risk, equity risk, foreign exchange risk might be encountered and might have negative impact on the bank.