RM- Project - Risk Capital at a Bank

Bank Credit Risks

Rasmussen College

March 11, 2017

Retail banking credit risks

A retail bank can get explained as a type of financial institution used by ordinary individuals in doing their daily business operations. Credit risk is uncertainty that the counterparty will not succeed in repaying the loan entirely or part of it. It includes payments delays or loan agreement defaulting. It gets known that credit risk is among the top most dangerous bank risks, for that sole reason there exists a separate credit section operated around the management’s view of a credit culture. The credit management department goal is maximizing the shareholder added value through the concept of credit management (Onyiriuba, 2016). Credit risk is high in retail banking if the loan gets given and the collateral got undervalued, and that means recovery process will be affected.

Credit risks associated with individuals and credit risks associated with institutions

There is a significant difference between risks related to people and credit risk associated with organizations because these risks arise apparently within the organization’s corporate services, business services, and cycle services and from organizational investment operations. Unlike individual credit risk, corporate credit risk has reduced loss pace but increased severity. It is impacted by both primary economic status and by the borrower particular events. Given the loss events in frequency in such portfolios, the high-risk business officer recognizes that the significant losses absence is any given year or over several years is not primarily representative of institutional holdings risks.

Retail banking services to individuals

Various services are offered by retail banking to people because it aims to be a single stop for as many financial aspects as possible on behalf of personal retail customers. The range of essential services offered to individuals is: accounts checks, saving accounts, credit lines, personal loans, mortgages, debit cards, credit cards among others. It gets observed that the local banking services are utilized by most consumers; since they offer onsite client service for the entire retail client’s business needs. The local retail bank locations are also important in providing customer service and financial advice through financial representatives. That is the case because the financial representatives are first applications underwriting contact connected to credit-approved packages.

Retail banking services to institutions

There is a broad range of services that get offered to organizations by retail banking. They include; loan offers and other credit commodities and this is the largest business area within retail banking and one of the most significant profits and loss sources for the bank. Also, cash management and treasury services applied by institutions in managing working capital and currency conversion demands; employee services such as payroll and team retirement plans; equipment lending in the form of structured customized loan and leases for an array of the material used by institutions in diverse areas such as manufacturing among others. Asset management and security underwriters are also related services through their investment banking arms.

Assessment and mitigation of credit risks

The existence of a credit department in retail banking is of great help because it helps in assessing the credit risks through laying out the facts of the client or an institution. What follows is running a report because it is important to determine the skeletons in the individual or institutional closet though they meet the agency requirements. The bank has been keen on managing these risks through taking security for the extended loan which the retail bank can assume ownership of in a situation of loan agreements defaulting (Bandyopadhyay, 2016). In offsetting the marginal default probability increasing, the bank asks for more assets if the market price of collateral becomes volatile. Another credit risk management aspect adopted by the bank is portfolio building with diversification between moderate and high-risk lending with the aim of reducing the credit losses.

References

Bandyopadhyay, A. (2016). Managing Portfolio Credit Risk in Banks. New York: Cambridge University Press.

Onyiriuba, L. O. (2016). Emerging Market Bank Lending and Credit Risk Control: Evolving Strategies to Mitigate Credit Risk Optimize Lending Portfolios, and Check Delinquent Loans. Amsterdam: Academic Press.

 Module 04 Course Project - Bank Credit Risks

Scoring Rubric:

Criteria	Weight	Points Received
Discussed the credit risks faced by retail banking from individuals and businesses	25	25
Identified and discussed retail banking services provided by the bank to individuals	10	10
Identified and discussed retail banking services provided by the bank to businesses and other institutions	10	10
Explained how the bank assesses credit risks and evaluated the plan for managing and mitigating these risks	30	30
Discussed the credit risks faced by retail banking from individuals and businesses	20	20
The assignment met the minimum page length of 3 to 4 pages, demonstrated the use of library resources, and demonstrated proper APA mechanics	5	3
Total	100	100

You did a good job discussing the credit risks faced by Bank of America from both individuals as well as businesses. You also did a good job explaining the services provided to both individuals as well as businesses. Great job explaining how Bank of America assesses credit risks and evaluated a plan for managing and mitigating these risks.

APA formatting was also written well. There were a few paragraphs where information was mentioned from your sources and it was not cited. Make sure to include going forward.

Thanks,