MATRIX AND IT’S APPLICATION IN SCIENCE

1.1 1.2 Statement of Research ProblemsClamp down on the Nigerian press has become so rampant that it has…

CHAPTER ONE INTRODUCTION 1.1   BACKGROUND TO THE STUDY Considerable researches such as Williams and Williams 2005, Simon 2006, Giddens…

1.0       INTRODUCTION The global economic recession, which started in 1980’s as a result of decline in the economic growth…

CHAPTER ONE INTRODUCTION Background of the Study One of the fundamental rights of every human being is education.…

Risks in Banks Risks are the uncertainties that can make the banks to loose and be bankrupt. According to the Basel Accords, risks the banks facing contain credit risk, market risk and operational risk. Credit risk is the risk of loss due to an obligator’s non-payment of an obligation in terms of a loan or other lines of credit. The Basel committee proposes two methodologies for calculating the capital requirements for credit risk, one is to measure the credit risk in a standardized manner and the other is subject to the explicit approval of the bank’s supervisor and allows banks to use the IRB approach. Market risk is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. The capital treatment for market risk addresses the interest rate risk and equity risk pertaining to financial instruments, and the foreign exchange risk in the trading and banking books. The value at risk (VaR) approach is the most preferred to be used when the market risk is measured. Operational risk is defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. There are three approaches applied to the operational risk measurement: Basic Indicator Approach (BIA), Standardized Approach (SA), and Advanced Measurement Approach (AMA). The banking business, compared to other types of business, is substantially exposed to risks, especially in this ever-changing competitive environment. Banks no longer simply receive deposits and make loans. Instead, they are operating in a rapidly innovative industry with a lot of profit pressure that urges them to create more and more value-added services to offer to and better satisfy the customers. Risks are much more complex now since one single activity can involve several risks. Risks are inside risks. Risks overlap risks. Risks contain risks. Scholars and analysts in recent decades have been trying to group banking risks into categories. The Basel Accords issued by the Basel Committee on Bank Supervision mention three broadest risk types in the first pillar: credit, market and operational risks. Then the second pillar deals with all other risks. Anthony (2009) categories risks into six generic kinds: systematic or market risk (interest rate risk), credit risk, counterparty risk, liquidity risk, operational risk, and legal risks. This categorization is based on types of services offered by banks. (The Wharton Financial Institutions Center 2007) But the risks seem to be insufficient and some overlapping can be found. Counterparty risk and credit risk are quite alike or the list lacks country risks, for example. Another classification that is quite comprehensive though not particularly aims at banks only is introduced in “The Essentials of Risk Management” (2006) by Michel Crouhy, Dan Galai and Robert Mark.