Citibank

The Risk Management – Citi Group Bank

Introduction

The banking sector in the United States has numerous banks that are listed on the New York stock exchange. This research plan will base around the Citi group holdings. Citigroup holdings have active shares traded and the New York stock exchange. Citi is an American banking unit that has its headquarters in New York Manhattan. It exists as a result of a historic merger between the Citicorp and the financial conglomerate Travelers group back in the year 1998. Statistics taken by the end of 2015 showed that it was among the top five largest holding banks in the United States ranking at position three. Being a multinational company it has approximately 16000 offices worldwide spanning 140 countries. Its shareholders from various regions in the world. The majority shareholders in the Citi group holdings originate from the Middle East and Singapore (Bejjani, 2009, p.155).

Before the recent global financial crisis, Citi was the world’s largest bank and company regarding total assets accrued. Citibank deals in all financial services as well as offering financial assistance regarding advice to its members. This research plan will include various areas of study including general knowledge about Citi group holdings, risk management measures, the success of the company, challenges and what they need to do as a company to return to the top(Bejjani, 2009, p.163).

Risks Management

There are some risks that banking industries go through, and Citi is no difference to other banking firms who trade on the New York stock exchange. This entails a file that managers in institutions formulates to project any risks that are like to occur in the process of striving to achieve the set target for a given firm. During working periods banks are invariably faced with different types of risk depending on the area of occurrence within the firm. It includes proper risk identification, measurement, and assessment to observe the outcome of the said risk. It is, therefore, advisable for banking institutions to formulate a certain section that would help in risk identification and analysis of the risk. Some of these risks include financial risks, strategic risks, operational, liquidity, and credit and compliance risks among others (Stone and Brewster, 2004, p.115).

Risk Types

Risks are unplanned for negative occurrences in business firms. There are numerous risk types that management ought to address before they damage the firms image in the public eye. They include the following among others.

Financial Risks

These are risks that come about majorly due to the changing economic conditions in the countries or regions of operations. In the year 2008 when there was a global economic meltdown, Citi suffered the most. It was only rescued by the United States federal government through the stimulus helping the firm back to its feats again. During the time, massive exposure to the troubled mortgages that were in the form of collateral debt obligations in addition to the poor risk management, it led the banking firm to its all time.

Strategic Risks

These are risks that originate from the basic decision-making process by the management about the preset objectives. The methods put in place to ensure that the set objectives are achieved are the ones that need to be on point. Failure to achieve the goals then business would fail. The assumption that Citi had about mortgage payment hit them hard when mortgage holders were unable to pay back during the economic crisis of the year 2008 (Stone and Brewster, 2004, p.201).

Operational Risks

Banking management boards need to incorporate awareness of strategic risks in their decision-making process. There is a high risk that the board members solely focus on the high-level strategy and assume what is likely to happen on the ground. When the board members are unable to draft important decisions the course of business may not be that good. Operational risks are almost in every banking firm. Failure to include then the proceedings may not be as the preferred outcomes (Frenkel and Hommel, 2005, p.44).

Risk Trends

This is emerging issues that business sought to address because they are considered to have a very adverse effect on the business in future. Some of the risks are developing over and over again, and there is a need to continue monitoring them to cut down on their effects to the firm (Frenkel and Hommel, 2005, p.91).

Risk Mitigation

It involves the incorporation of other factors to control the rate or effects of risks in the banking industry. Having strategies to control risks is a best defensive method that a firm can have rather than wait for the risks to take its toll before the management can act. Some of the strategies that can be used to mitigate risks include, developing a successful stress testing framework that can be used for testing in the firm (Cox, 2007, p.77).

Credit Risks

These are risks that banking incurs when a bank borrower defaults in payment of the pre-agreed terms due to financial struggles. The Citi group suffered greatly from the credit risk in the year 2007 when great numbers of borrowers defaulted in payment.

Lending and Practices

The policies of banking industries concerning lending changes slowly depending on the economic condition in which the bank operates or the financial position of the firm. Some effective lending practices have been amended to meet the new sponsoring needs of industry and business. In some cases, new techniques of lending have been devised to extend credit to finance new types of business. The terms and conditions under which certain types of loans can be made have been altered by federal or state legislation (Stone and Brewster, 2004, p.255).

Capitalization and Solvency

It includes a given threshold that a banking firm must operate above or else it is dissolved. The rates are provided by the central bank, from which all banking firms are supposed to acknowledge. Citi group holdings were saved from being dissolved due to massive debts at the time by the central government under the stimulus program.

References:

Bejjani, L. N. (2009). Financial risk management: Testing the CAPM of Citigroup stocks

Cox, D. W. (2007). Frontiers of risk management: Key issues and solutions. London: Euromoney Books.

Enterprise risk management: Today's leading research and best practices for tomorrow's executives. (2013). Hoboken, N.J: Wiley.

Frenkel, M., & Hommel, U. (2005). Risk management: Challenge and opportunity. Berlin [etc.: Springer.

Rossi, C. (2014). A risk professional's survival guide: Applied best practices in risk management.

Stone, A., & Brewster, M. (2004). King of capital: Sandy Weill and the making of Citigroup. New York: Wiley.