FUNCTIONS OF FINANCIAL INSTITUTION.

Financial institutions (FI) are formed to deal with financial and monetary transactions.
Due to their important role in the economy, the government creates laws and regulations to
oversee FI activities.

OBJECTIVES OF FI:
-Satisfy Financial Needs.
-Assist Customers: investment services, savings services, loans
-Mobilize Savings: accepts deposits, pays interest on deposits to increase customer's income

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TYPES OF FI:
-Credit Unions: non-profit, managed by members. Pools members' assets or savings to provide
financial services to them. Members belong to a specific group. Offers low interest rate on loans
and higher interest rate on investment instruments (i.e. savings accounts).

-Commercial Bank(CB): for-profit, accepts deposits and provides loans. (department store of
finance)

-Financial Services corporation: large conglomerates that combines many different financial
institutions within a single corporation.

-Investment Bank(IB): IB =/= CB. primarily concerns the needs of businesses and the
government. Deals with mergers and acquisitions, initial public offerings, and large projects.
Acts as intermediary, underwriter, lender, and consultant. (are also called underwriters)

PENSION FUNDS:
-are retirement plans funded by corporations or government agencies for their workers.
-administered by trust departments or by life insurance companies.
-invests primarily in bonds, stocks, mortgages, and real state.
-Ex. of Pension funds in Phil.: SSS for private and GSIS for public workers.

MUTUAL FUNDS:
-organizations that pool investor funds to purchase financial instruments
-thus reduce risks through diversification.
-achieves economies of scale in analyzing securities, managing portfolios, and buying and
selling securities.

EXCHANGE TRADED FUNDS (ETFS):

-similar to mutual funds. Generally traded in public markets
-buys a portfolio of stock…
HEDGE FUNDS:
-largely unregulated
-similar to mutual funds because they accept money from savers to buy securities.
-originally used to individuals trying to hedge risk.
-not insured by insurance

PRIVATE EQUITY COMPANIES:

-operates like hedge funds
-but rather than buying some of the stock of a firm, they buy and then manage an entire
company

CLASSIFICATIONS OF BANKS IN THE PHILIPPINES

RA 8791 GBL 2000 classifies banks into:

UNIVERSAL BANKS:
-have the authority to exercise, in addition to the powers authorized for a commercial bank, the
powevers of an investment house and the power to invest in non-allied enterprises.

COMMERCIAL BANKS:
-banks that have, in addition to the general powers incident to corporations, all such powers as
may be necessary to carry on the business of commercial banking such as accepting drafts and
issuing letters of credit; discounting and negotiating promissory notes, drafts,bills of exchange
and other evidences of debt; accepting or creating demand deposits; receiving other types of
deposits and deposit substituresl buying and selling foregin exchange and gold or silver bullion;
acquiring marketable bonds and other debts secrutieis; and extending credit subject to such rule
as the MB may promulgate.

RURAL BANKS:
-provides needed credit readily available and accessible in rural areas promotes comprehensive
rural development

THRIFT BANKS:
-includes savings and mortgage banks, private development banks, and stock savings and loan
associations.

COOPERATIVE BANKS:
-provides financial, banking and credit services to cooperative organizations and their members.

ISLAMIC BANKS:
-Charter of Al Amanah Islamic Investment Bank of the Phillippines.

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IMPORTANCE OF FINANCIAL INSTITUTIONS.
-Most of the world depends on FI for daily transactions
-Economy depends on FI
-FI leads to economic growth during recession
-Acts as an INTERMEDIARY between fund suppliers and users
-Thus, it's essential for a country's financial stability

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FUNCTIONS OF FI:

Regulate Monetary Supply.

-regulates economy's money supply
-control inflation
-tools: open market operation, CRR to regulate liquidity, increasing/decreasing repo rates
-buying and selling government securities

Bank Services.
-offers credit facilities to clients who need financial support
-gives reasonable interest rate for savings and other deposit accounts
-covers: personal, educational, automobile, home, and mortgageable loans

Insurance Services.
-sells premiums and pays policyholders and beneficiaries during unfavorable events.
-covers life and nonlife insurance.

Formation of Capital.
-provides funds to businesses that require external funds to implement expansion plans by
accepting individual's savings.
-thus FIs help in the formation of capital

Investment Consultation.
-For investors who may not be acquainted with numerous investment options.
-FIs help clients to adopt the best investment option available.
-Based on investor's risk-taking and other interests

Brokerage Service
-FI serves as a broker between investors and various companies for selling stocks, bonds,
shares by getting a brokerage fee.

Movement of Financial Resources.

-Movement of financial resources from one area to another.
-Through FI, money transfer was made easy for large funds.
Managing Risk.
-Manages risk of their clients
-By assembling individuals and businesses to share the risks and difficulties faced by them

DEPOSITARY AND NON-DEPOSITARY FI.

Roles of Financial Institution:

provides services in...
-Buying and selling financial assets for themselves or clients
-Repackaging financial assets into new assets
-Creating and managing portfolios for clients

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DEPOSITARY.
-financial intermediaries (middle men; link between client and seller)
-raises funds through deposits made by their customers.
-includes COMMERCIAL BANKS, SAVINGS INSTITUTIONS, and CREDIT UNIONS.

types of depositary:

SAVINGS AND LOANS ASSOCIATIONS (S&L)

-takes deposits from small customers in order to make loans to borrowers
-

CREDIT UNIONS
-FIs formed by members of common interest
-Ex: public employees or residents of a particular region.
-Deposits made by members are used to make loans with reasonably low interest rate to union
members only.

COMMERCIAL BANKS
-sells financial securities to the public
-Customers who make deposits can make withdrawals
-Depositors receive interest payments from the bank
-Serves as key institutions in the financial intermediation process of a country
-holds more debt than equity due to this
-highly risk institutions
-invests in risky assets to profit
-expected to maintain a level of safety in their operations in order to
-maintain credibility, and to protect the nation's economy from excessive risk-taking

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NON-DEPOSITARY.
-includes finance companies, insurance companies, mutual funds and pension.
-services: provide insurance, provision of financing and assisting in transactions of securities.

FINANCE COMPANIES.
-provides loans (in small amounts)
-finances its operations through sales of it's own securities (stocks, bonds, commercial papers,
borrowings from commercial banks)
-Unlike banks, FC raises capital in larger chunks using the channels listed above
-Unlike banks, FC face less regulation compared to depository Institutions in the loans they
make.

-Finance may be classified as: BUSINESNESS FINANCE, SALES FINANCE, and CONSUMER
FINANCE COMPANIES

BUSINESS FINANCE COMPANIES.

-Caters to businesses.
-Services: loans, leasing of assets, purchasing of ARs from companies at a discount.
-Businesses that need immediate cash sells its ARs at a discount to BF Companies.
-this is called FACTORING

SALES FINANCE COMPANIES.

-created as divisions of larger companies
-provide the customers of the main company with financing to purchase its own goods and
services
-Ex: Most auto car companies provide finances to customers to purchase their vehicles.

CONSUMER FINANCE COMPANIES.

-focus on providing loans to purchases household assets
-Unlike Sales companies, it is not created by a particular business to support the sale of its own
goods.
-Unlike Business finance companies, it caters households instead of businesses

INSURANCE COMPANIES.
-provides protection against unfavorable events
-receives payments (called premiums) from customers
-In exchange: promises to pay their beneficiaries a specified amount if such an event occurs.
-invests funds collected from premiums in long-terms Financial assets (bonds & stocks)
-Two types: LIFE and NONLIFE insurance

LIFE INSURANCE.
-in case of death or incapacitated
-pays beneficiaries if such event happens to policyholder
-policyholder is the one who paid for the premium.

Term Life:
-coverage for a pre-specified period or term.
-AKA temporary life insurance.
-no cash value for policyholders.
-no payoff if policyholder does not die during the policy term.
-requires renewal
-premium costs increases per renewal due to the policyholder aging.
-policyholders can opt for a lower benefits package to pay less

Whole Life:
-protects policyholder until death
-surplus funds from premiums are invested on behalf of policyholders
-unlike Term Life, Whole life guarantees payment to beneficiaries
-premiums are more expensive than Term Life.

Universal Life:
-a form of Whole Life Insurance
-has characteristics of both whole and term life
-has a predetermined period in which the policy is valid
-at the same time, it has cash value
-this premium is used to: pay beneficiaries at death and to invest surplus funds so policyholder
has a return
-cash value built over time can be used by policyholder

Variable Life:
-another form of Whole Life
-surplus premiums above the term life policy is invested on behalf of policyholder
-promises a specific minimum payment at death
-possibility of higher payment if invested surplus earn a higher return
-policyholder can choose where the surplus funds are invested

Group Life:
-for workers, under one policy.
-Contributory Group Insurance: employer and employees may share the payment of premium
-Non-Contributory: employer can also pay the whole premium for its employees

NONLIFE or PROPERTY AND CASUALTY INSURANCE

Property Insurance:
-protection against damage or loss of property

Causalty Insurance:
-protection against legal liability
-ex: harm caused to third parties due to accidents

Nonlife insurances are renewed annually and premium costs increase if expected payouts rise.

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REGULATION OF FINANCIAL MARKETS AND INSTITUTIONS

-protects the interest of financial asset consumers and investors
-eliminates or reduces the potential collapse or spread of failures in financial institutions and
-ensures that society derives benefits from the activities of the financial market.

MAY BE IMPLEMENTED IN VARIOUS WAYS:

-Direct regulations in its own country via Institutions such as SEC
-Countries may collaborate as a group to implement a regulatory framework

GOVERNMENT-BASED REGULATIONS, two types:

DISCLOSURE BASED REGULATION:
-requires Publicly listed companies to provide credible FS to the public.
-ensures transparancy

MERIT BASED REGULATION:

-requires FIs to do specific things to benefit societal interest or reduce negative consequences
on society.

(note that in contrast, FIs and Financial Markets MAY HAVE internal regulations to guide its own
operations.)

SELF-REGULATION is done in order to maintain CREDIBILITY AND CONFIDENCE.

Topic 2: MONEY, BANKING AND FINANCIAL MARKETS.

IMPORTANCE OF FINANCIAL SYSTEM:

-keeps the high standard of living in the Western World
-allows underdeveloped countries to develop
-vital to economic growth

TWO SECTORS: REAL AND FINANCIAL

REAL SECTOR:
-consists of markets for real outputs (goods and services)
-inputs and outputs

INPUTS AND OUTPUTS

Inputs:
-includes demand and supply of labor, capital, and raw materials.

Outputs:
-goods and services produced.

FINANCIAL SECTOR:
-consists of markets for financial assets.
-shares, bonds and money.

There must be a means of connecting OWNERS of resources and those who NEED those
resources.

Contractual Financial Arrangement.

an agreement to let entrepreneurs use the resources of creditors.

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Creditors: owners of resources; loaned resources to entreps.

Borrowers: entrepreneurs borrowing resources.

This arrangement allows goods and services to be produced, and income generated.

PROBLEMS:
-what if borrowers do not reimburse creditors but instead absconds?
-what if entrepreneur fails because they did not know about what they are representing to the
creditors?
-how much reimbursement will the creditor receive?

The arrangements may be formal or informal, written or verbal

===========================================================

Banks play a major role for making it possible for those without the resources to get resources.
the core activity is to act as intermediaries between depositors and borrowers.

Financial systems provides an efficient mechanism for creditors to extend credit their credit to
borrowers. Without the financial sector, output of commodities will be extremely low and
societies will be very poor.

The more complex the financial system, the higher the number of regulatory bodies.
CONSEQUENCES IN A WORLD WITHOUT FINANCIAL INSTITUTIONS:
-There would be a low level of funds flowing between suppliers and users.
-All risks goes directly to supplier.
-If FIs don't exist, suppliers of funds (e.g., households) will generate excess savings, and would
have two choices: hold cash as asset or directly invest cash to users.
-There will be a DIRECT transfer of money (see chart)

FLOW OF FUNDS IN A WORLD WITHOUT FINANCIAL INSTITUTIONS:

Users of Funds (Corporations) --> --> Suppliers of Funds (Households)

Users of Funds (Corporations) <-- <-- Suppliers of Funds (Households)

Direct Transfer - when corps sells its stock or debt directly to investors without going through
a financial institution.

In a world without FI, level of funds would like be low due to ff reasons:
1) suppliers of funds need to monitor continuously the use of their funds - costly monitoring
cost
-Monitoring is extremely costly of time and effort.
-Suppliers are likely to leave the monitoring of borrowers to others, increasing the risk of
directly investing financial claims.
2) suppliers of funds prefer to hold cash for liquidity
-the long-term nature of most financial claims discourages suppliers.
-financial market may not be active or well-developed.
-savings are used to pay for future expenditures.
3) fund suppliers face a price risk upon the sale of securities
-secondary market trading of securities involves various transaction costs
-Ex: the selling price of securities in a secondary market such as the NYSE may differ
from its initial purchase price due to the time between it was bought and sold or due to the
additional transaction costs imposed by dealers (intermediaries) for completing a trade

FI is basically a company that engaged in the business of dealing with financial and monetary
transactions such as deposits, loans, investsments and currenycy exchange.
FI that perform the essential function of channeling funds from those with surplus funds to those
with shortages of funds.

Indirect Transafer - transfer of funds between suppliers and users of funds through financial
intermediary.

In a world with FI, there would be High monitoring cost.

-Some perform aggregation of funds to reduce the overall monitoring cost and can be done
more efficiently.
-Monitoring function performed by the FL alleviates the “free-rider” problem
-FI becomes the delegated monitor, economic agent appointed to act on behalf of smaller
investors in collecting information and/or investing funds on their behalf.
Liquiditiy and Price Risk
-FIs provide further claims to funds suppliers thus acting as asset transformers.
-financial claims issued by an FI are more attractive to investors than are claims directly issues
by corporations. (this is due to the fact that banks are back by central bank)
-claims issued by FIs have liquidity attributes that are superior to those of primary securities
-in reducing the liquidity risk of investing funds for fund suppliers, the FI transfers this risk to its
own balance sheet

FI ability diversify away some, but not all, of their investment risks.
Diversify - the ability of an economic agent to reduce risk by holding a numbers of securities in
a portfolio.
Portfolio increases → FI have more power to diversify → portfolio risk falls → lessen price risk
←- FI to predict more accurately its expected return and risk on its investment portfolio

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Financial Markets
- any place or system where trading of financial instruments occurs.

FM can be distinguished along two major dimensions:

-Primary versus secondary markets
-Money versus Capital markets

Primary Market: sells NEWly issued stocks

-issues of equity by firms initially going public, referred to as initial public offerings (IPOs)
Secondary Market: RE-SOLD and RE-PURCHASE
-offer buyers and sellers liquidity—the ability to turn an asset into cash quickly—as well as
information about the prices or the value of their investments and trading with low transaction
costs..

Money Market.
- short-term financial instruments are bought and sold; if the term is less than a year; such as
treasury bills, commercial paper, negotiable certificate of deposit and banker’s acceptance.
-Fluctuations in their prices in the secondary markets in which they trade are usually quite small
(the shorter the duration, the lesser impact to prices)

Capital Market
- Long-term financial instruments are bought and sold; if the term is more than a year; such as
treasury bonds, govt. Agencies, bank and consumer loans and corporate stock and bonds.
-Given their longer maturity, these instruments experience wider price fluctuations in the
secondary markets in which they trade than do money market instruments (the longer the
duration, the bigger impact to prices)

DEBT INSTRUMENT:
-bonds
-principle: HOW MUCH was borrowed
-maturity or term: when the principal is PAID BACK
-interest: ADDITIONAL AMOUNT to pay and how often until maturity

Stock or share.
-ownership in a company

Bond Market.
Stock Market.
Money Market.

Financial Intermediaries LOWERS COST of borrowing money and MINIMIZES RISKS.

-lowers cost due to borrowing money from many savers while lending to many borrowers
-minimizes risk by having a diversity of borrowers.
-when a bad debt occurs, an FI still has many other borrowers. Thus the loss is only small, not
crucial.

Foreign Exchange Markets

-Foreign exchange risk is the sensitivity of the value of cash flows on foreign investments to
changes in the foreign currency’s price in terms of dollars
-While foreign currency exchange rates are often flexible—they vary day to day with demand
and supply of foreign currency for dollars—central governments sometimes intervene in foreign
exchange markets directly or affect foreign exchange rates indirectly by altering interest rates.
-The sensitivity of the value of cash flows on foreign investments to changes in the foreign
currency’s price in terms of dollars is referred to as foreign exchange risk

Derivative Security Markets

-A derivative security is a financial security (e.g., future, option, swap, or mortgage-backed
security) whose payoff is linked to another, previously issued security, such as a security traded
in capital or foreign exchange markets
-involve an agreement between two parties to exchange a standard quantity of an asset or cash
flow at a predetermined price and at a specified date in the future.
-Derivative markets are the newest of financial security markets and are also potentially the
riskie

Importance of FM to Economic Development to the suppliers of funds

-Reduce transaction costs
-Economies of Sclae
-Maturity Intermediation
-Denomination intermediation

Importance of FM to Economic Development to the Financial Sysmtem as whole

-Transmission of monetary policy
-credit allocation
-Intergenerational wealth transfers or time intermediation
-payment services

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MARKET AND INSTITUTION.

our constitution has RA 8791, General Banking Law of 2000

Monetary board consists of 7 members: 5 from private sector, 2 government sector

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ROLES OF FINANCIAL INSTITUTION.

1# Regulation of Monetary
-regulates money supply to control inflation and maintain stability.
-tools: cash reserve ratio, open market operations, etc.

2# Banking Services
-provide savings and deposit services
-offer credit facilities like overdrafts
-provide loans and mortgages

3# Insurance Services
-transfer customer's risk of loss to themselves

4# Capital Formation
-increase in capital stock like plant, machinery
-mobilize idle savings from individuals

5# Investment Advice
-helps customers, investors, and businesses to
select the best investment option.

6# Brokerage Services
-provide investors access to several invesment options available
-ranges from stock bonds to hedge funds and private equity
7# Pension Fund Services
-helps individuals plan their retirement

8# Trust Fund Services

-A service that manage the client's assets, invest them in the best option available, and
safekeeping.

9# Financing the Small and Medium Scale Enterprises

-provide long and short-term funds to small businesses

10# Act as A Government Agent for Economic Growth

-the government regulates financial institutions on a national level.
-acts as a government agent and help grow the nation's economy.

Conclusion:
-Financial Institutions are the backbone of the economy.
-Economy will go down without it
-government regulates Financial Institutions through the central bank, insurance regulators,
pension fund regulators, etc.
-Over the years, their role has expanded from accepting and lending funds to larger service
areas

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Circulation of resources.

Two principal ways in which surplus funds can be directed to users:

- Direct funds: via financial markets
- Indirect funds: lending via an intermediary

Asymmetric Information: AKA "Information failure" one has greater knowledge on the
transaction than the other.

-Adverse Selection: Selecting whom to give more your money is a very important part of
controlling risk. Without information about those seeking funds, theory goes that you would have
to charge an average price for your money or sale item. But an average price would cause
those who are better risks or have better products to shun your offer, while those with higher
risks will seek your offer, resulting in adverse selection.
- Moral Hazard: borrower behaves differently after securing the loan; increases risk of project
failure. Or borrowers don't use borrowed funds as inteded.
(ex: people with car insurance drives recklessly than those who don't)

Problems:
- the borrower may not accurately explain what they are borrowing the money for.
- losses will lead to creditors in increasing their interest rates.

===============================================

Fractional Reserve Banking or RESERVE RATIO of a percentage of a minimum amount

Money Multiplier = 1 / Reserve Ratio

meaning: for each money deposited, it is multiplied into loans, thus injecting new reserves into
the money supply.

The more banks hold money as reserves, the smaller the multiplier.

=================================================

Money.
- most liquid of financial assets
- surpluses can be held and are readily available for use
- generally acceptable
- those who want to buy resources to produce commodities would prefer to have money to its
flexibility
- amount of money in the economy could give an indication of the intensity of demand for
commodities in the economy
- money is a financial asset; it is bought and sold just like any other financial asset and therefore
has a price
- price of money affects all other financial assets in the economy. i.e. foreign exchange currency

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Finance Across the World:

Complex Network - global financial system, institutions, markets, money flow, investments

Central Banks - regulate money, interest rates, currency supply

Stock Markets - Buy and sell of company shares

Bond Markets

Electronic Trading - Technology: HFT, Algorithmic trading, computer algorithms

Derivatives Market - Contracts from assets

Globalization - tech boosts cross-border transactions

Global Financial Crises - crises that led to regulatory reform

Regulation and Oversight - prevent risk, fraud, ensure stability

FInancial Innovations - Online banking, mobile payments, cryptocurrencies change fund

management

Topic 3: MANAGEMENT OF RISKS IN BANKING.

Risk management involves spotting the key risks, deciding where the risk exposure should be
increased or reduced, and identifying the methods for monitoring and managing the bank’s risk
position in real time.

Risk:
- the volatility or standard deviation (square root of variance) of net cash flows
- inadequate risk management will lead to solvency of a bank

The risks specific to banking are:

- credit
- counterparty
- liquidity or funding risk
- settlements or payments risk
- market or price risk:
- currency and interest rate risks
- Capital or gearing risk
- Operational risk
- Sovereign and political risk

==========================================

CREDIT AND COUNTERPARTY RISK

- Counterparty: one party will renege the terms of a contract (go back on a promise)

- Credit risk: an asset or a loan risks becoming irrecoverable due to unexpected delay in
serving of loan; biggest risk for banks.
- credit risk is avoidable by choosing assets with very low default risk but low return, but the
bank profits from taking risk.
- good credit risk management has always been a key component to the success of a bank.
- CREDIT RISK WHEN NOT BEING PAID BACK BY BORROWER.

LIQUIDITY OR FUNDING RISK

- the risk of insufficient liquidity for normal operating requirements.
- refers to a bank's inability to fund day-to-day operations
- directly affects the ability of the bank to meet its liabilities when due
- source of problem: shortage of liquid assets

SETTLEMENT OR PAYMENTS RISK

- if one party pays money or delivers assets before receiving its own cash or assets, thereby
exposing it to potential loss.
- Herstatt Risk: named after the German bank that collapsed in 1974. Another term for
payment risk.
- Central Bank requires banks to settle its net obligations, after cancelling and debits on a given
day.
- (RTG) Real Time Gross settlement. Communication occurs in real-time. Operated by the
central bank.

MARKET OR PRICE RISK

- a major type of risk.
- the risk of losses due to changes in the market value of financial instruments
- ex: interest rate fluctuations, changes in exchange rates, change in the price of commodities,
change in market sentiment.
- in banking, market risk arise from several sources, including trading activities, investment
portfolios, and exposure to interest rate and foreign exchange rate fluctuations.
- managed by having a diverse portfolio, hedging, __

INTEREST RATE RISK

- price risk: when value of an existing fixed-income investment, such as bonds, changes due to
fluctuations in interest rates.
- reinvestment risk: when future cash flows from an investment needs to be reinvested at lower
interest rates.

CAPITAL OR GEARING RISK.

- Gearing Risk (Leverage Risk): arises when banks utilize borrowed funds to finance their
activities, thereby increasing their leverage compared to other businesses.
- Capital Risk: the possibility of a bank's capital being depleted due to various risks: credit,
market, or liquidity
- Capital serves as a protective buffer against losses and facilitates regulartory comppliance.

OPERATIONAL RISK.
- other terms: Human Capital, Physical Capital, Legal, Fraud.
- Human Capital: risk of error from human error.
- Physical Capital: damage to physical assets, business disruption, system failure, problems
with execution and process management
- Legal: the risk of bank being sued. Can happen due to business practices or the treatment of
clients
- Fraud: may be internal or external to the bank
SOVEREIGN RISK.
- Sovereign risk: a government defaults on debt. TYPES:
- Sovereign defaults
- Debt Repudiation (denying that borrower made the debt),
- Debt Rescheduling (postponing debt payment). NO COLLATERAL
- a special form of credit risk, except the bank lacks the tools to recover from the debt.
- Problems with enforcing the loan contract: Borrowing money in the future is harder.
- leads to trust issues, raises concerns, low confidence.
- example cases:
- post-WWII, China, Cuba, and NK have repudiated their debt obligations.
- some of the poorest countries had their debt forgiven after 1996. Called DEBT RELIEF
(special case)
- some countries have threatened to repudiate their debt. (Russian & Argentina)
- other countries announced they cannot meet an agreed payment.
- sometimes sovereign defaults are intentional, political or economic moves.

POLITICAL RISK.
- state interference
- political risks looks like sudden tax hikes, interest rate or exchange rate control regulations,
nationalization(ownership transferred to the public), and privatization (transfer of ownership from
the public to a single individual) of its banking sector.
- ALL businesses are exposed to political risk,
- but BANKS are MOST VULNERABLE due to its VITAL ROLE in the financial system.

================================================================

INTERACTION BETWEEN RISKS.

- All interconnected or interdependent.
- other risks are often more dicrete, unique or event-type, which affects a bank's profitability and
risk exposure.
- 3 KEY RISKS RELATED TO BANKS:
- Credit, Market, Operating

=================================

BANK RISK MANAGEMENT.

- implement frameworks of policies, procedures and controls
- requires careful planning
- Done in order to protect themselves and their customers from potential financial losses
- Risk officers are tasked with identifying, evaluating, and managing risks across various
departments.