Position Limits and Rules
In practice, many financial institutions included our selected bank have faced with certain risk. How banks manage risk, through what? In my suggestion, the management of the banking firm relies on a position limits and rules to implement a risk management system. On the whole, these tools are established to limit individual positions to acceptable levels, measure exposure, encourage decision makers, and define procedures to manage these exposures to manage risk in a pattern that is constant with the firm's objectives and goals.
The use of position limits and rules for internal control of active management in minimum standards for participation. In the latter, those banks' counterparties or assets that once pass some prespecified quality standard just can take the domain of risk. There some limits are imposed to cover exposures to overall position concentrations, counterparties, and credits that relative to different types of risks, even that are eligible for those investments. As a whole organization and any one individual can be assumed their imposition restricts the risk, although the limits are expensive to administer and establish. The general case, each portfolio managers, lenders, and traders must have well-defined limit in commit capital.
For example, Volcker Rule. What is Volcker Rule? In the wake of the financial crisis of 2008, Dodd-Frank is a key part to reform its rule and this Volcker Rule was named by former Fed Chairmen Paul Volcker. The Volcker Rule was sketch by the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, the Federal Reserve, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission. These regulation known as the Volcker Rule would prevent bank for their own gain from speculative trading in the market. For those banks engage in similarly speculative