Beyond loss avoidance to strategic risk management

Article Abstract:

The traditional approach of banks in relation to risk management is centered on the prevention of unexpected losses. However, a new approach will prove to better maximize shareholder value. Strategic risk management, which is an integration of risk management with strategic planning, calls for the establishment of comprehensive and strategically integrated risk management processes linked to a risk-adjusted capital framework. Basic to the success of strategic risk management are several factors, namely, a shared corporate culture, vigilance regarding the firm's risk appetite and tolerance, well-defined support system, a risk-adjusted measurement of business performance, visibility of strategy, and effective incentive compensation. A sophisticated performance measurement called risk-adjusted return on capital is also essential to the process.

Evaluation

The liability trap

Article Abstract:

Banking institutions planning to sell insurance products must consider the legal implications of their marketing plans. Since banks had a disastrous experience in the past selling mutual funds and collateral protection insurance, they must always be on their guard to avoid similar troubles. The key is to know the regulatory environment both at the federal and state level, including state insurance and banking laws. Banks must also match their products with the target customers to avoid inappropriate sales. This can be accomplished through comprehensive training of sales personnel, strict monitoring of customer information and licensing requirements, retention of final approval for all insurance product sales and requiring consumers to sign disclosure statements. Another logical step is to review customer files for any tying violation.

Insurance, Insurance Carriers and Related Activities, INSURANCE CARRIERS, Marketing, Bank insurance business, Bank marketing

Trading at risk

Article Abstract:

The financial turbulence of credit markets worldwide in Aug 1998 and Sep 1998 had a profoundly adverse impact on the trading operations of major money center banks despite the fact that these banks already had sophisticated risk management strategies in place. Some key lessons have emerged from the experience. For one, no amount of computer simulation can model all anticipated risks. For another, banks have learned that state-of-the-art risk management models cannot replace the judgement and expertise of seasoned professionals. Another significant lesson is that credit discipline and credit standards are critical when forging trading contracts. It appears that, generally, trading banks are taking these lessons to heart and implementing the necessary changes in their risk management strategies.

Credit Management, Case studies