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Actuarial Risk Management > Banking Overview > Flashcards

Banking Overview Flashcards

1
Q

List the general characteristics of banks.

A
  1. Roles of banks
  2. Types of banks
  3. banking products and activities
  4. Pricing
  5. Provisions
  6. Revenues and costs
  7. Balance sheet
  8. Key risks
  9. Legislation
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2
Q

List the key risks that banks face.

A
  1. Credit risk
  2. Market risk
  3. Operational risk
  4. Liquidity risk
  5. Business strategic risk
  6. Currency risk
  7. Pre-payment risk
  8. Model risk
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3
Q

Give the two major trends that affect the banking sector in general.

A
  1. Increasing regulatory requirements for risk management and measurement,
  2. Fintech - greater digital and mobile banking experiences and improved use of data and AI
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4
Q

Give the types of retail banking products.

A
  1. Transactional accounts
  2. Savings accounts
  3. Credit cards
  4. Overdrafts
  5. Mortgage loans
  6. Vehicle finance loans
  7. Unsecured personal loans - revolving and term
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5
Q

Give the types of business banking products.

A
  1. Transactional accounts
  2. OVerdrafts
  3. Asset-based finance
  4. Unsecured loans
  5. Merchant services
  6. Foreign exchange and trade solution services
  7. Cash solutions
  8. Savings and investment products
  9. Portfolio management
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6
Q

What is the main source of revenue for a bank?

A

Interest and fees charged to customers

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7
Q

Describe what non-interest revenue in a banking context.

A

Income earned from the fees charged from banking book operations - account fees, commitment fees, transaction fees, asset management fees and insurance fees.

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8
Q

Describe net interest income for a bank.

A

Banks fund themselves accepting deposits at lower interest rates than the rates that they charge their debtors.

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9
Q

Give the sources of income for a bank.

A

Revenue

  1. net interest income
  2. Non-interest income
  3. Trading income
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10
Q

Give the main costs that a bank faces.

A
  1. Operational expenses

2. Cost of credit

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11
Q

Give a breakdown of the operational expenses that a bank faces.

A
  1. Staff costs - main cost
  2. Marketing and sales
  3. IT systems and equipment
  4. Running a branch network
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12
Q

Break down the assets in a bank’s balance sheet.

A
  1. Loan book
  2. Earning assets
  3. Non-earning assets
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13
Q

Break down the liability on a bank’s loan book.

A
  1. Customer deposits - commercial banks
  2. Cash-collateralised instruments
  3. Liabilities associated with derivatives and the trading book
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14
Q

Give the subcategories of a bank’s loan book in the assets of its balance sheet.

A
  1. Retail secured
  2. Retail unsecured
  3. Corporate
  4. Commercial
  5. Loan loss reserve
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15
Q

Describe how a bank experiences the “cost of credit”

A

If loans are late with repayments, they are considered non-performing and interest accrued for these loans is not included in calculated profit.
If it becomes clear that a loan will not repay interest or the principal amount, then the loan is classified as a loss and is written off the balance sheet and any later recoveries are written in later.

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16
Q

What specific risk is associated with credit risk and may cause concern despite the overall creditworthiness of a bank’s books?

A

Concentration risk - single name or sector concentration

17
Q

Give the types of market risks that banks face.

A
  1. Volatility risk
  2. Currency risk
  3. Basis risk
  4. Interest rate risk
  5. Liquidity risk
  6. Commodity price risk
18
Q

Describe basis risk.

A

When one is exposure is hedged with an offsetting exposure in another instrument that behaves in a similar, but not identical manner.

19
Q

Give the Operational risks that banks face,

A
  1. Internal processes
  2. People
  3. Systems
  4. External events
20
Q

Describe the operational risk management with regards to internal processes.

A

Clear, orderly and complete processes to meet the responsibilities to clients, manage risk, control payments, protect against fraud and comply with the regulations

21
Q

Describe the operational risk management with regards to people.

A

Communicate and enforce rules, minimise conflicts of interest and set proper incentives to maintain an ethical culture.

22
Q

Describe the operational risk management with regards to systems.

A

Adequate technology resources that are backed up and protected from security breaches.

23
Q

Describe the operational risk management with regards to external events.

A

Have the ability to know and monitor clients to guard against fraud and protect people and facilities,

Actuarial Risk Management (26 decks)

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