Chapter 7: Risk management in banking Flashcards
who are the 3 main regulators of the NZ financial services industry
- the reserve bank of new zealand (RBNZ)
- Financial Markets Authority (FMA)
- the commerce commission
who are the 4 regulators that make up the the council of financial Regulators (COFR)
- the reserve bank of new zealand (RBNZ)
- Financial Markets Authority (FMA)
- the commerce commission
-Ministry of Business, Innovation and Employment (MBIE)
The overarching aim of the ……. is to contribute to maximising NZ’s sustainable economic wellbeing through responsive and coordinated financial system regulation. A core component of this response is the identification and monitoring of risks to overall financial stability
Council of Financial Regulators (COFR)
what is the COFR (COuncil of financial regulators)
a non-statutory body without regulatory or policy decision making powers. Those powers rest with its members
where the extent that the fragility of a bank or the other financial institution could affect the market and economy as whole is known as what kind of risk?
Macro-Prudential Risk
what are the two categories risk can be splis in too
Absolute risk = the situation has only a chance of loss or no loss (NO Gain)
Speculative loss = possibility of loss or gain based on a decision to accept or decline a risk
credit scoring has involved into behavioural scoring, a method of determining the credit risk associated with an exisiting account, what are 3 factors often considered in behavioural scoring?
- the savings pattern of a customer
- the regulatory of credit payment made
- any unpaid items
it is further enhanced by live feeds of info from credit reference agencies, which can verify the behaviour of other related bank credit accounts
the risk that the loan will not be repaid is what type of risk
Credit or default risk
The risk that a bank does not have sufficient level of liquid assets to meet current or future payment obligations is what kind of risk
Liquidity Risk
The risk of an adverse impact on a bank’s valuation s and profits resulting from changes in market factor, such as foreign exchange rates, interest rates and commodity or equity prices is what kind of risk
market risk
what kind of risk may arise because oof inappropriate, unethical o unlawful behaviuor on the part of bank employees.
conduct risk
what type of risk is the risk of loss resulting from inadequate or failed internal processess, people and systems or from external events . (covers things from fraud, human error to fire and floods)
Operational risk
what is the risk associated with the vulnerability of a line of business to changes in the business evironment
business risk
the loss of reputation, stakeholder confidence or public trust and standing is what kind of risk
reputation risk
The threats to a system, market or economic segement is what kind of risk
systematic risk
the risk that a bank has not entered into a contract in good faith or has provided misleading information about, assets liabilities or borrowing capacity
Moral Hazard
……. risk decrsibes the risk to banks as prudentil measures chage over time
regulatory
what are the 3 lines of defence in the risk management framework
1st = business operations (day to day activities & risk processes)
2nd = risk and compliance functions ( develop risk management processes)
3rd = internal audit (objective assessment, review the 1st and 2nd lines of defence)
what is the 8 step process for the AS/NZ ISO 31000:2018 Risk management standard principles an guideline activities
- establish context
risk assessment (which includes) - risk identification
- risk analysis
- risk evaluation
- risk treatment
monitoring and review (ongoing)
communication and consultation (ongoing)
why woud workshps be used for risk identifiaction
often used when a bank is about to start a project or implement a major change
when is the risk matrix used
in the risk analysis segment
what does a risk matrix look at
likelihood (almost certain to rare) and severity of impact (Insignificant to extreme)
what is residual risk
the threat that remains after all efforts to identify and eliminate risks have been made
risk treatment is a key process, involving a setion of one or more options for mitigating risks what are these 6 options
- avoid
- accept
- remove
- reduce
-transfer - change
what are risk indicators
are metrics which help with monitoring and control of identified risks over time. they are a ‘health’ check of the performance of the business and can be used by all functions to ensure that risk is controlled satisfactorily. They usually measure risk at set control points in the business and act as an early warning signal to alert problems areas
what 4 things make a effective risk indicator
measurable
predictable
comprable
informational
what is a risk register
a tool to identify potential risk in a project or an organisation, sometimes to fulfil regulatory compliance but mostly to identify potential issue before they occur. a risk register is the form of a log, and includes info about each identified risk, such as the nature of that risk, level of risk, who owns it and what are the control measures in place to respond to it