•
Liquidity risk. •
Rate risk.
• Exchange risk. •
Credit risk.
1-Aspect
of the risks:
The question of financial structure is asked, in banks, according
to the now classic approach of the Capital Asset Pricing Model.
Like any economic agent, the bank has a utility function which
reflects its tastes and preferences in terms of dividend yield
and risk. On the other side, bank is confronted to choice issue
in terms of uncertain future, assets and liabilities, knowing
that each structure generates a global risk more or less high.
In such conditions, the bank, thought its amount and combination
choices of assets and liabilities, tries to maximize the yield
of its portfolio and to maintain the risks resulting from its
amounts and combinations to an acceptable level, while respecting
the regulation to which it is subjected to. Then it is about:
- Analysing the risks and calculate the probable losses in case
of the opposing evolution of risks factors.
- Comparing losses to the amounts of common equity to appreciate
the survival possibility.
What is a risk?
A risk appears when the fulfilled effective result can be different
from the expected or hoped result.
Please note that the risk in the physical world is the distance,
in both ways (positive or negative), of a precise point. But
indeed, in the credit world we consider a risk in a negative
way.
Classification of the risks:
- Default risk: it is the risk of loss to a liability.
- Damage risk: it is the loss of the value of an asset, the
evolution of the promotion by the market. It is a wider risk,
a loss of value that can end to a total loss.
Classification
through the origins of the risks:
-
Counterparty risk: simple on the liabilities, whether it is
direct by the de debtor or indirect by a third party (recovery
rate on the credit).
- Assets-Liability risk: it is a market risk, loss of value,
rate risks or even exchange risk for a claim or a debt.
- Operational risk: risk of loss resulting from an imputable
failure caused by a person or procedures, or even from an intern
system of the bank and also outer operational risks. This includes
juridical risks and exclude strategic or reputation risks.
Specificity of banking risk:
- Specificity by nature:
o Classic aspects of banking risks (economic risk- economic
crisis…).
o Specificity of risks on the long term.
-
Specificity by consequences:
o Importance of financial institutions in the economy (inner
causes: bad management- fraud…).
o Contagion risk, pro-cycling… (global cause).
