risk management project- part 3- mitigating bank risks
Heytheb.hage
part_1.docxRunning head: BANK RISK TYPES AND TRENDS 1
BANK RISK TYPES AND TRENDS 4
Bank Risk Types and Trends
Notes from teacher: Great job addressing each area and look forward working with you on developing the ideas. As you build the project, consider adding to each section and submitting it in its entirety, making it easier to accommodate feedback and constantly sharpen your thoughts
Introduction
The banking risk is exposure that might result to uncertainty of the outcome. There are various risk types that are categorized based on different aspects such as the causes and the area affected. These types are operational risk, credit risk, sovereign risk, trade risk, foreign exchange risk, and interest rate risk. Risk trends are various changes that occur in these types of risks and they are most influenced by the changes in the economy among other factors. Risk mitigation. Credit risk is the exposure that the creditors bear when lend money to individuals. Lending practices vary among lending institutions change and are influenced by various factors. Capitalization refers to when the cost of acquisition of the assets are expensed over the period over life of the asset instead of the period it was incurred. Solvency is the ability of a firm to meet long term financial obligations.
Bank of America is a multinational bank that has its headquarters in the United States. This bank offers banking and financial services and has its headquarters in Charlotte in North Carolina. The bank offers its products also services through 5100 bank centers as well as 16300 ATMs, online, mobile banking platforms as well as call centers. The company offers products such as consumer banking, finance, and insurance, mortgage loans, private equity, investment banking, corporate banking, wealth management, private banking as well as credit cards. The aim of this paper is to create a risk management plan for the Bank of America.
There are strategic, operational, finance as well as compliance risks that are associated with the Bank of America as well as the banking industry in general. Banks are faced with various types of risks in the process of their operation. The risks include credit risk, market risk, operational risks, liquidity risks business risk, reputational risks and many others (James, 2012).
The banking industry has encountered some risks that have emerged in the recent times that were not considered as important previously. Regulators demand that banks understand these risks to ensure that solutions are obtained to help in managing these risks. Some of the key emerging risks include corporate governance risks, quality of assets, dangers of gearing and over-leverage, risks of inadequate risk transfer and many other trending risks.
According to a recent report is that banks have continued to ease their lending standards as well as terms in the past three months which have increased their risks. Banks have not altered the lending standards for home equity lines of credit in accordance to what the FED recommended.
Credit is the likelihood that a loan borrower from a bank will not meet their obligations to the bank or will not repay the loan at the required time. This risk is very common, and it requires mitigation by ensuring that the risks are covered by insurance company. Capitalization and solvency are essential to banks. Capitalization indicates that the amount of capital it holds a solvency shows the whether the bank can meet its long-term liabilities.
References James, M. J. (2012). The story of Bank of America: Biography of a bank. Washington, D.C: Beard Books.
