Question

Are financial institutions more risk averse since the crisis ? How do they manage risks ? Are they profitable from risk management ?

Answer 1

Risk is quantitative, multi-dimensional and subjective concept.

Its dependent on the analyst's risk management.

Yes, Financial institutions are more risk averse since the crisis.

As we can study that while managing portfolio Financial institutions try to lower the risk through investing in safe assets like government bonds, Gold bonds, and other fixed income sources like Debentures and Other corporate bonds. So that they can reduce risk arising from equity market. This is how they manage the risk. Government securities will have zero risk and Equity market will have major risk factor so that will make balance in portfolio.

Further Financial Institutions will also invest in Different countries markets to lower the risk possible in government securities.

Yes, They are Profitable from Risk management as they are having Fixed income from Fixed income securities like bonds and debentures and they can have huge amount of profit from equity market. If they occur the loss still they have one source of fixed income so that is profitable for them.