Question

discuss the types of risks that banks face in their operations

Answer 1

A bank is a very important financial institution in a society. It is a financial institution that helps the people to deposit their money in bank accounts and earn interest. It leads to inculcating the habit of saving. The bank also provides loans to people who are in need of money. But in this whole process, there are several risks that the bank faces. Some of them are:

1. Credit risk: The risk faced by the bank when they have given a loan to a person and the loan is mot being paid back. This kind of risk ia known as credit risk.

2. Market risk: The risk faced by the bank due to changes in the interest rates and equity market. In other words, the changes in market will affect the bank which is known as market risk.

3. Operational risk: This is the kind of risk that is faced by a bank when they have improper internal processes, people and systems.

4. Liquidity risk: The risk that is incurred by banks due to lack of liquid cash is known as liquidity risk.

5. Business risk: The risk incurred by bank when they do not earn the expected profit is known as business risk.

6. Reputational risk: The risk incurred by the bank which affects the reputation and popularity of the bank in the market is known as reputational risk.

7.Systemic risk: The risk that will affect the whole industry ia known as systemic risk.

8. Moral hazard: The risk of unethical due to improper moral standards leads to moral hazards .