Financial Risk Management For Dummies

Chapter 15

Banking on Risk

In This Chapter

Understanding bank-specific financial risk management requirements

Relating risk to capital requirements

Staying confident

Modern financial risk management was developed for US commercial banks, banks that take deposits from the public and whose main traditional source of risk is credit risk from making loans. Therefore, even if you don’t work in a bank, you may find that this chapter helps make sense of some risk management terminology and rules. Also, of course, nearly every financial business depends on the banking system, so bank risk management has strong impacts on everyone else’s risk management.

On the other hand, bank risk management is the most complicated and regulated of any financial risk management, which can make it frustrating to study. Most banks are complex institutions with lots of financial businesses and lots of operating and non-operating entities working in many legal jurisdictions. In this chapter, I only cover the core business of banking, but a bank may have asset management subsidiaries, investment banking arms, large trading desks or other businesses. At a certain point, the complexity becomes the main risk management ...