Risks Inherent in Financial Institutions
Abstract
The major risks faced by banks and related financial institutions include credit risks, interest rate risks, market risk, and operating and liquidity risks. The other risks include residual, dilution, settlement, compliance, concentration, country, foreign exchange, strategic, and reputational risks. The major tools of a risk management system used by banks are stress testing and asset and liability management. The different forms of interest rate risk are gap or mismatch risk, basis risk, embedded-option risk, yield curve risk, price risk reinvestment risk, and others. The instruments for credit risk management consist of estimating expected loan losses, multitiered credit-approving ...
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