Unit 1 Flashcards
Bank business model
Obtain funding- deposits from customers, borrowing from other banks, issue debt securities.
Lend money (loans, credit facilities) and accept risk (letters of credit and guarantees)
Income through interest, fees or margins.
Sources of risk- credit, investment, operational processes
Insurance business model
Underwrite risks (receive premiums, promise to pay claims) underwriting profit
Invest premiums (receive investment income) investment profit
Profit = earned premium + investment income - incurred loss/claims + underwriting expenses
Sources of risk - insurance; investment; operational processes
6 reasons why we consider banks and insurance companies together?
- Common risks eg mkt, credit, ops
- Regulators seeking good risk management practices
- People moving between sectors
- Trends towards globalisation and consolidation
- Significant to the global economy
- New technologies as a threat and an opportunity
Reasons for RBS failure
2 changes in CRO
Dominant CEO
Aggressive risk culture
Compartmentalisation of risk
Too much emphasis on need to quantify risk
Forgetting value of sound judgment
Scan the horizon for emerging risks through:
- Forecasting
- Driver mapping ( Pestle and Steeple)
- Trend analysis
- Scenario planning
2020 top 5 global risks
Climate action failure
Weapons of mass destruction
Biodiversity loss
Extreme weather
Water crisis
Banana skins - Banking
Crime; macroeconomic; technology; security; credit
Banana skins- Insurance
Cyber/ crime; regulation; technology; climate change; interest rate changes
Benefits of RM
FIRM - Financial, infrastructure, Reputational; marketplace
5 risks World Economic Forum-likelihood
Extreme weather conditions
Failure of climate change mitigation
Natural disasters
Data fraud/theft
Cyber attacks
5 risks World Economic Forum- impact
WMD
Failure of climate change mitigation
Extreme weather
Water crisis
Natural disasters
Techniques to measure change in business performance
KPIs and KRIs
