Answer to Question #200037 in Economics for mahima

Question

Risk Management is a predominant function of the Treasury unit in a Bank. Relate the

concept of Risk Management and types of risks in the context of various activities of the

Treasury unit in a Bank

Answer 1

Despite the fact that risk management is one of the most relevant areas of management in commercial banks, the theoretical literature lacks unambiguous approaches to the concept and content of the risks of credit institutions. One of the discussion

issues are the classification of banking risks.

Existing approaches to the classification of banking risks,

formulated by scientists, regulators, and commercial structures, give reason to believe that by now the banking community is not in this issue on a single and scientifically justified positions.

The fundamental point is that credit institutions are exposed to various types of risks:

- general risks to which absolutely any objects are exposed,

functioning in a given social stratum, locality, geographic area, etc. - for example, robbery or natural disasters;

- market (entrepreneurial) risks to which any entrepreneurial structure is exposed - for example, failure of a strategy, lack of demand for a product, changes in legislation;

- risks of banking concentration, to which, in particular, credit risk are exposed precisely to credit institutions due to the specifics of their activities;

- risks of bank initialization, in which the bank is a risk factor.

Risk management requires different methods and procedures:

for general and market risks - typical for any

business structure, for specific banking risks - special methods of risk management of credit institutions.

Risk management toolkit concept, definition

the possibility of using in certain cases similar methods and tools of risk management requires more detailing the types and varieties of risks as a theoretical justification. This task is solved in the course of risk classification: the allocation of classification features and the assembly of one or more groups of risks corresponding to these signs.