The bank should establish and communicate risk limits through policies, standards, and/or procedures that define responsibility and authority. These control limits should be meaningful management tools that can be adjusted if conditions or risk tolerances change. The bank should have a process to authorize exceptions or changes to risk limits when they are warranted. Risk […]
Banks should monitor risk levels to ensure timely review of risk positions and limit or policy exceptions. Monitoring reports should be frequent, timely, accurate, and informative, and should be distributed to appropriate individuals that perform oversight functions.
Credit risk. The risk arising from an debtor’s failure to meet the terms of any contract with the bank or otherwise fail to perform as agreed. Credit risk is found in all activities where success depends on counterparty, issuer, or borrower performance.
Interest rate risk. The risk arising from movements in interest rates. Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (repricing risk); from changing rate relationships among different yield curves affecting bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve […]
Liquidity risk. The risk arising from a bank’s inability to meet its obligations when they come due, without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. Liquidity risk also arises from the failure to recognize or address changes in market conditions that affect the ability to […]
Price risk (or market risk). The risk arising from changes in the value of portfolios of financial instruments. This risk arises from market-making, dealing, and position-taking activities in interest rate, foreign exchange, equity, and commodities markets.
Operational risk (or Transaction risk). The risk arising from problems with service or product delivery. This risk is a function of internal controls, information systems, human resource issues, and operating processes. Operational risk exists in all products and services.
The fourth chapter of the OECD Principles of Corporate Governance endorsed by the OECD council in 1999 is solely devoted to Transparency and Disclosure. Market transparency is a simple concept that brings huge private and public rewards. Adoption of good disclosure practices makes the financial markets fair and thus encourages people to invest their savings.
Basel Committee, Paper «Enhancing bank transparency», September 1998 To achieve transparency a bank, in its financial reports and other disclosures to the public, should provide timely information on key factors affecting market participants’ assessment of banks. Basel Committee sets forth the following six broad categories of information, each of which should be addressed in clear […]
In the MD&A, banks disclose the potential impact of currently known trends, events and uncertainties that are reasonably likely to have material effects on a bank’s financial condition or results of operations. Irrespective of the terminology used in different countries to describe this type of disclosure, this qualitative information about operations and financial conditions is […]
