Answer to Question #170320 in Finance for Nancy Longwani

Question

Financial institutions face a number of risks in their operations. How are these risks mitigated or managed? What techniques are used to mitigate each type of risk you have identified?

Answer 1

Operational risks in financial institutions occur due to errors and damages caused by people, the system, and the process. These risks include cybercrime, disruptive technologies, and business interpretations. Financial institutions can mitigate these risks by owning collateral, loan people with good credit histories, and transact with high-quality counterparts.

Cyber crime-The financial institutions use techniques such as increasing awareness of cybercrime techniques and also ensure the operating system on all computers receives security update regularly.

Disruptive technologies- The technique used here is to ensure that technological changes are either anticipated or adapted to.

Business interruptions- The technique used by financial institutions to deal with business interruptions that lead to lower profits is to purchase business insurance.