Session 1 - Walter - Reputational risk Flashcards
Give a definition of reputation
It is the opinion (social evaluation) of the public toward a person, a group or organisation. In a business context, reputation helps drive the excess value of a business firm
When does reputational capital gain or looses ?
When the following changes :
- Cumulative reputation, including its self-promoted ethical image
- Economic performance
- Stakeholder interface
- Legal interface
Give the 4 symptoms of loss of reputational capital
- Client flight and loss of market-share
- Investor flight and increase of the cost of capital
- Talent flight
- Increasing contracting cost
What are the three risks with high degree of manageability ?
- Market risk
- Credit risk
- Liquidity risk
What are the three risks with low degree of manageability ?
- Operational risk
- Sovereign risk
- Reputational risk
What are the sources of reputational risk ? (2 benchmarks)
Benchmark 1 : from the intersection between the financial firm and the competitive environment
Benchmark 2 : from the direct and indirect network of controls and behavioural expectations within which the firm operates
Give the elements reputational risk is based on
It is based on fundamental values in society that may or may not be reflected in expectations as to how a firm’s conduct is assessed. There may be slippage between values and expectations.
Is reputational risk static ?
No, neither values nor expectations are static over time. Values seem to change much more gradually. The same conduct may be interpreted differently across cultures, giving rise to unique contours of reputational risk
It is likely that the broader the range of a financial intermediary’s activities :
- The greatest the likelihood that the firm will encounter conflicts of interest and reputational risk exposure
- The higher will be the agency costs facing its clients
- The more difficult and costly will be the safeguards necessary to protect the value of the business
