BANKING RISK MANAGEMENT

BANKING RISK MANAGEMENT

All the businesses are confronting themselves with macroeconomic and microeconomic risks; the former are including different effects of recession, for example, while the latter have in view competitive threats.  

The companies face breakdowns in technology, commercial failures of suppliers/ customers, political interferences, natural disasters, wars.

The banks are supposed to manage the risks which arise from balance sheet business; banks have fee generating activities which do not appear directly on the balance sheet. Risks can be caused by business transactions and processes of the banks with different customers; banks can get profits if they charge prices higher than the costs of delivering products/ services. So the banks are supposed to identify the risks which are associated with each business they are running. Banking transactions are to take into account the following type of risks: credit risk, liquidity risk, interest rate risk, currency risk, market risk, operational risk, legal and regulatory risks, environmental risk, health and safety risk.

The methods and instruments the banks use for carrying out this purpose are very different and are permanently changing and up dating. Monetary authorities try to develop new and dynamic systems of controlling the banks money adapting them to the environment and seek to control the risks caused by new types of operations.

Competition among banks exists but it can be tempered by a strict surveillance which prevents banks to take excessive risks. If competition reaches a very high peak, the banks can move in other areas of higher profitability for them. Risks can become excessive because of hostile reactions of the institutions already existing and acting in the new area banks have moved in. Banks can also suffer because of the problems caused by the financial markets, economic bad management of the government, fraud, corruption and other problems that can affect the prosperity of the area the work in.

Bank managers are supposed to analyze the risks, find out new procedures to diminish them or to get rid of them. They must create effective risk management systems which can manage the risks the banks are exposed to because exposure to risks reduces the value of future cash flows they expect.

Text Comprehension

Answer the following questions:

What are the businesses facing?

Do banks manage risks?

Which risks do banks face?

What do monetary authorities try to do?

Is there competitions among banks?

What are banks supposed to do under these circumstances?

What are managers supposed to do under these circumstances?

Vocabulary

Bankruptcy (faliment)

Bank cash flow (Flux de fonduri reprezentand miscarea fondului monetar prin banca)

Cash flow (plati in bani lichizi)

Credit risk (riscul ca o posesiune sau imprumut sa devina de nerecuperat )

Forfaiting (forma de rabat)

Gearing  (efectul de levier )

Gearing ratios( indici care caracterizeaza intensitatea efectului de levier )

Insolvency  (incapacitatea de a onora datoriile)

Interest rate risk (risc provocat de rata dobanzii )

Market risk( risc provocat de piata)

Payment risk (plata facuta de catre un partener inainte de a-si primi proprii sai bani)

Price risk (bancile suporta preturile pe instrumentele negociate pe pietele bine stabilite)

Risk management (management de risc)

Risk of global banking (diversificarea globala a activelor permite bancii sa si imbunatateasca managemntul de risc marind profitabilitatea si valoarea adaugata actiunilor)

Sovereign risk ( se refera la riscurile pe care un guvern nu le indeplineste cu privire la o datorie pe care o are la o banca private)

Systematic risk (posibilitatea ca esecul unei banci de a regla platile cu alte banci sa provoace o reactie in lant privand alte banci de fonduri)

Volatile (o piata/marfa/actiune etc. a carei valoare poate fluctua rapid si frecvent)