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Risk In Banks

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When an organization like a bank fails to come up with ways of mitigating any risk that they face or could possibly face. The impact of risk can have far-reaching effects on an organization that fails to be prepared. Organizations like banks can benefit from considering their risks especially when it is doing well and when there are indications of market growth. It is advisable for risk management to be used as a preventive measure and not a reactive measure. The risk management process is all about identifying exposures to risks, measuring those exposures and making a decision on how to protect the business from the risks (Kidwell et al., 2016). There are several risks that a bank is exposed to that could impact its organizational strategy …show more content…

Market risk will have a negative impact on how profitable the bank will be. Market risk has components like interest risk, equity risk, foreign exchange risk and commodity risk. Banks are also exposed to operational risks that are brought about due to failure in the internal processes, people or systems that operate within the bank (Sweeting, 2017). Operational risk is mostly caused by human error such as the filing of wrong client information or when confidential information is leaked. When this happens, it could lead to issues with its clients and …show more content…

When a bank unable to conduct its day to day business as it should, then it will lose its client base to their competitors. This could also make it impossible for the bank to meet its objectives that it had set for itself. The bank that is unable to conduct its business as it should also risk being put into receivership. Another risk that could also negatively affect a bank is a reputational risk that could be caused by the activities at the bank, rumors, non-compliance with regulations, bad customer service etc. All this and more could affect the reputation of the bank negatively which could also lead to loss of clients. Systemic risk is the risk that the bank is exposed to due to the failure of one of the banks in the network. Banks are connected to a network and the failure of one of them will affect the others within the same network. Since banks help each other on matters to do with credit risk so the failure of one bank will affect the others. Most banks are also counterparties and the failure of the other bank can lead to the others declaring bankruptcy especially when they have to write off assets of the bank that has

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