Question

Please discuss where major bank risks are coming from one by one and what to do about them

Answer 1

Market risk- Investment banks are especially vulnerable to the risks of financial-market shifts. This is because they keep more financial assets for themselves and their clients, such as shares and bonds. For example, market risk may arise from a shift in interest rates, the price of a good or a currency's exchange rate. For example, banks that have bought shares in an oil company will lose money, if global oil prices unexpectedly collapse.

Operational risk- Both banks are vulnerable to human errors or mistakes to a certain degree. This is called operating risk, in business terms. It comes from the losses of poor internal systems, assets, or external events that a bank may be creating. Of example, this may be classified information leaked or an employee's poorly judged decision. The operational-risk losses can be massive. In the past decade, British banks have had to pay over £30bn for mis-selling payment security insurance (PPI). Customers were sold the insurance despite in many cases not being eligible for or needing it. It was intended to cover loan repayments in such cases where the borrower could not pay,

Credit risk- Individuals and companies who refuse to repay their debts pose the greatest risk to the banks. When someone is lending money, there is always a risk that they won't pay you back. It's credit risk. Banks have ways to cut the risk. When you apply for a loan, the lender will look at what’s known as the five C’s: credit history, capacity, collateral, capital and conditions.

Banks retain capital to handle all kinds of risk to cushion the blow from losses. The difference between what a bank owns and owes is bank money, which means its net worth. The biggest banks now need to have as much as ten times more capital than they had before the financial crisis of 2008.