Risk Limiting

Question 1

What is the idea of risk limiting?

Answer 1

Risk limiting consists in setting upper limits for losses that might from risky transactions

It is a passive risk response strategy

Question 2

Please describe opportunities how to manage a exceptional growth of a given department in a certain market

Answer 2

1. If risk coverage funds are on previous years level they should be increased. For example the total risk limit should be enlarged to accommodate the growth and the increase should be attributed to the limit for the given department in a certain market.
2. If an increase of the risk coverage funds is not possible there might be limits that have not been fully exhausted (aufgebraucht) in the previous year so that unused portions can be attributed tot the limit for a the given department in a certain market.
3. If the risk limit reflects the planned growth a higher portion of the limit, a higher portion of the limit than historically justified should be reserved for the given department in a certain market.