The word risk carries many different meanings in different contexts. In the financial world there are two very different types of risks being considered – enterprise risks and financial risks. When we talk about enterprise risks, we are talking about the risks that affect the bank itself. However, when we talk about financial risk management for banks, the concept of risk used in finance is different. In the analysis and financial management of many types of risk, the main types of financial risk are the following: currency risk, counterparty risk, interest rate risk, liquidity risk, country risk, bankruptcy risk and political risk. The distinction will be clear once we explore both types of risks.

Enterprise Risk Management for Banks

Banks, just like any other enterprise, need to manage the risks that affect their business. What is unique about banks is how they are regulated. These banks are under many regulations and are regularly scrutinized when it comes to risk management. They also have to adhere to external risk reporting requirements, which is why specialized risk management solutions are needed. Most banks use an enterprise risk management solution.

What is financial risk management?

Financial risk management refers to risks that directly affect the financial business of the bank. It may seem confusing – enterprise risks can also have a financial affect on the bank, so why the distinction? The important thing to note here is that a bank deals in risk – risk is the bank’s business. When we are talking about general risks that affect the banking organization, just like general risks affect every business organization, those are enterprise risks. When we talk about risks that deal with the investments, outlooks, and portfolios which the banks deal in, that is financial risk management.

There are many different financial risks which banks have to deal with. Most get financial risk management software to augment their risk mitigation efforts.

Currency risk:

It is the risk on the variations of the currencies of the currencies between it, risk related to the time factors. Companies could be passive and only risk the existence of imbalances that justify active risk management, which consists of protecting against adverse risk while taking advantage of favorable developments.

Counterparty risk

It is the risk that the party with whom a contract has been concluded does not fulfill its commitments. For a bank, it is the risk that its customers are in the same position. Inability to repay their loan or another bank with which outstanding transactions (correspondent banking) are being considered bad debt.


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The interest rate risk:

For a bank, it is the risk that changes in market rates will lead to a renumbering cost. Deposits greater than the gains generated by the interest on the loans granted.

An enterprise’s interest rate risk arises from changes in the market value of equity due to unanticipated interest rate fluctuations.

Liquidity risk:

This is the risk on the facility to buy or sell an asset. If a market is not liquid, you may not find a buyer when you want or find a seller when you absolutely need it, it is a risk related to the nature of the underlying (the merchandise) but also to the credibility of the seller buyer. Indeed, it is easy to buy or sell a current product to a trusted counterpart, but more difficult with a very specialized product, counterparty risk for potential suppliers / customers, dissolve them to deal with.

Country risk

If a country is experiencing a very serious crisis (war, revolution, cascading bankruptcy, etc.), even the “trust” companies, despite their credibility, will find themselves in difficulty. It is a counterparty risk related to the counterparty’s environment.

Political risk:

It results from events, decisions and actions of a political or administrative, national or international order that may result in losses for the importing company working or investing abroad.

Here at 360factors we specialize in enterprise risk management for banks. The Predict360 Risk Management solution has been specially designed for banks and financial institutions. Get in touch with our team for a demo and a trial.