risk management project- part 3- mitigating bank risks

People risks

There are huge risks that are experienced when a company is dealing with money. People risks associated with a bank are numerous. Banks deal with people including employees, creditors, debtors and others. Employees can be a source of great risks especially when they expose confidential information to the public. The information can be accessed by criminals who can cause a great loss in regards to the company’s information and money. Debtors are people who can result in great risks when they fail to repay their debts together with interests, and this affects the existence of the bank. Creditors affect the bank when they withdraw their money at once to go to other banks or use their money. This situation causes a company to have less amount of money to lend, and this can affect the bank's existence. The managers of a bank can also put a bank in risks by making wrong decisions by doing things that put the bank's existence in jeopardy

Financial risks

There are different types of financial risks that faced by banks. One risk involves the bank paying its creditors. Banks usually use the money of clients who deposit their money in bank accounts to lend to borrowers. Banks create money by charging interest on loans and therefore return their clients’ money and also pays a small percentage of interest. When creditors withdraw their money at one time, the bank lacks money to lend, and this increases the risk to a bank as it can become bankrupt (Fight, 2014).

The other risk is recovering money from debtors. Banks get funds from the interest that they charge for loans and when debtors fail to pay the bank can be in trouble since it needs the money to pay creditors as well as get its operating cash. Errors that are caused by people and machines can be a source of great risks as the bank can lose money.

Operational risks

Operational risks are termed as risks of losses that may result from the processes that are inadequate or that have failed. Additionally, these risks may be attributed to people, external events, and systems. The operational risks that might be associated with the Bank of America may emanate from the installation of new systems of banking that have not yet been tested. Operational risks may also result from the failure of the management to take seriously the recommendations that have been made regarding the improvement of operations within the bank. The failure of people to exercise responsibility in their behavior as well as exercising high levels of professionalism is one of the major ways that may trigger the emergence of the operational risks because the processes within will not be running the way they are expected to operate. Ethical values and integrity have to be upheld at all time to ensure that there is smooth running of all processes within the bank.

Risk mitigation

Mitigation of the risks is finding strategies that will prevent the emergence of these risks as well as the way to address them if they happen. Proper record management is one of the ways that can be applied in risks management to help in ensuring that records are kept well for references especially in handling matters to do with finances. Credit management is another approach applied in risk management since it assists in keeping a trail of the credit advanced to the customers of the bank. Healthy credit management is likely to enhance the success of the bank. Insurance policies for the bank are one of the ways applied to mitigate the risks. Insurance also makes sure that when these risks occur and cause loss, the bank is compensated. Due diligence is applied as a mitigation strategy of researching on the ways to improve the performance and understanding the risks that may come along the way (Information Resources Management Association, 2015).

References Fight, A. (2014). Understanding international bank risk. Chichester, West Sussex, England: John Wiley & Sons. Information Resources Management Association. (2015). Banking, finance, and accounting: Concepts, methodologies, tools, and applications.