Risk Management Techniques of Banks

Some of the important models of risk management are : (1) BaseI II financial stability (2) Three Pillars of BaseI II for giving triple protection, (3) Enhanced risk management which provides greater incentives in Pillar 2 process supervisory review is held essentially in managing the risk in banks. In reviewing the process of financial stability, banks in an efficient stature conduct (a) a capital framework (b) enhanced and controlled risk management (c) supervision on risk (d) practice on conversion of risk.

Triple Protection pillar of Base II covers the areas of risks in banks viz. , minimum capital, Supervisory Review and evaluation (SREP) + Banks Internal view (ICAAP) and market discipline. In Enhanced Risk management there are incentives available to adopt more sophisticated and zero risk approaches, adequate business tools to perform exceedingly well in BaseI II model that is adopted by banks in more than 100 countries. Under this model, risk management involves both the board and senior management, internal controlling, audit department and contingency planning.

Objectives of Pillar 2 protection are to ensure that adequate capital is available to support all risks that are unforeseen, encourage financial institutions to manage risk and also develop a healthy relation between institutions and supervisors. European Legislation has implemented BaseI II triple protection model of risk management in almost 25 countries under the head Capital Requirements Directive (CRD) The directive is applied to both financial institutions and investment firms. In this regard Committee of European Banking Services plays a vital role  in providing advice to European Commission.

CEBS exercises a high level of authority in Central Banks, operates technical details in banking regulations. CEBS affects the banking business in EU in regularizing the standards and guidelines and also to motivate EU members to stay be committed at national level. Conclusion Emergence of new banks, new currencies, crisis of banking sector, inflation, deflation, restructuring of banks, merge or acquisition of banks have all been a part of the responsibility of global financial institutions such as IMF or world bank who have been on the constant working in keeping the monetary regulations of global economy under control.

Further globalisation has expanded the working operations of banking sector in delivering various new products to consumer viz. , global bonds, treasury bonds, FDIs, ADRs, GDRs, foreign exchange currency rates, maintaining equilibrium and keeping a safe and secured position with legal frame work and technicalities of banking sector. Particular in European Union with the advantage of Euro as a common currency, there is a boom in European  countries which are promoting both GDP, industrial sector, real estate sector and in hospitality and tourism.

Banking sector is one of the major sector of a nation which reflects on the health of an economy which is why less number of insolvent banks, mergers or acquisitions unless emergently required have to be discouraged with the fact that, expansion of banking sector is always good for a nation especially with internet banking facility which is offering a great service to online banking customers through offering personal loans, home loans, demat accounts and even offering health insurance plans which is good for both rural and urban development of under developed and developing nations.

References

  • Belgium Central Bank Reviewed on 31 October, 2007 http://www. portalino. it/banks/_be. htm
  • Economic survey of Belgium 2007: Enhancing the benefits of financial liberalization Reviewed 31 October, 2007 http://www.imf.org/external/np/speeches/1999/020499.HTM