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    RISKS

    Possibility that an investment's actual returnwill be different than expected; includes the

    possibility of losing some or all of theoriginal investment.

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    BANKING RISK

    Banking is a risky business, and bankingorganizations have identified many riskfactors in the financial services environment

    including;

    Credit risk,

    Market risk,

    Liquidity risk,

    Operational risk.

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    OPERATIONAL RISK

    What is operational risk?

    risk that external events or deficiencies in internalcontrols or information systems will result in an

    economic loss-whether the loss is anticipated to

    some extent or entirely unexpected.

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    VARIOUS RISKS IN BANKING OPERATIONS

    A bank refers to a financial institution which actsas payment agent for customers by borrowing and

    lending money. The banking operations feature the

    following risks:

    The borrowers can default taking away the

    bank's money The changing economic environment can pose a

    risk for banking operations as they govern the

    interest rates. The regulatory institutions pose a risk to the

    banking operations with their regulations The quality of loan

    Aging ownership groups

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    DIAGRAMIC VIEW OF BANKING RISKSBanking Risk Exposures

    Balance sheet

    structure

    Income statementstructure/

    profitability

    Credit risk

    Capital adequacy

    Interest rate risk

    Market Risk

    Currency risk

    Liquidity risk

    Financial Risks Business Risks

    Legal risks

    Financial

    Infrastructure

    Macro

    Policy risks

    Systemic

    (Country) risk

    Event Risks

    Political risks

    Other

    exogenousrisks

    Banking crisis

    risk

    Contagion risk

    Operational Risks

    Business strategy

    risk

    Internal systems

    and operational

    risks

    Technology risk

    Mismanagement

    and Fraud

    Reputational

    Risk

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    OTHER BANKING RISKS

    1. SOLVENCY RISK

    Solvency riskis the riskthat a creditor

    will lose his entire investment if a debtorcannot repay him in full, even if all the

    debtors assets are liquidated. Traders

    call this counterparty risk.

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    LIQUIDITY RISK

    The riskthat arises from the difficulty ofselling an asset. An investment maysometimes need to be sold quickly.

    Unfortunately, an insufficientsecondary market may prevent the

    liquidation or limit the funds that can be

    generated from the asset.

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    CREDIT RISK

    Credit risk is risk due to uncertainty in acounterparty's (also called an obligor's or

    credit's) ability to meet its obligations. Becausethere are many types of counterpartiesfrom

    individuals to sovereign governmentsand

    many different types of obligationsfrom autoloans to derivatives transactionscredit risk

    takes many forms.

    http://www.riskglossary.com/articles/derivative_instrument.htmhttp://www.riskglossary.com/articles/derivative_instrument.htm
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    INTEREST RATE RISK

    The possibility of a reduction in the value ofa security, especially abond, resulting from a

    rise in interest rates. This riskcan be reduced

    by diversifying the durations of thefixed-incomeinvestments that are held at a

    given time.

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    PRICE RISK

    Probability ofloss occurring from adversemovement in the market price of an asset.

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    Components of Operational Risk

    Core operational capability

    People

    Client relationships Transactional and booking systems

    Reconciliation and accounting

    Change and new activities Expense and revenue volatility

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    Operational Risk Process Models

    Establish objectives and requirements of keystakeholders

    Identify core processes

    Define performance and risk metrics

    Implement organizational and risk mitigationstrategies

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