Risk Management in Banks

This research paper is divided in three parts .The opening part attempts to briefly describe the changes in the banking scenario since 1991 reforms and the necessity of introducing Basel III to the Indian Banking sector. Part II presents the Basel standards framework and explains why the transition from Basel II to Basel III norms has become necessary to bring in measures and safety standards which would equip the banks to become more resilient during the financial crises and prevent the banks being subject to liquidations /closures. Part III brings out a discussion on the compliance process by the Indian banks to Basel standards in recent period and finally, the issues and challenges faced by the Indian Banking sector are posed in the conclusion.

In 1988, an agreement was reached in Basel to set the common requirements of bank capital towards promoting the soundness and stability of the international banking system. Banks are required to hold capital in proportion to their perceived credit risks. In
June 2006 Basel Committee on Banking Supervision issued a comprehensive document on New Capital Adequacy Framework to replace the 1988 Basel Accord and to foster a strong emphasis on risk management and to encourage ongoing improvements in banks’ risk assessment capabilities. The paper examines the potential impact of Basel II on the banking sector of Bangladesh. A survey is conducted to find out the present status of the implementation of Basel II and their possible impact and reaction of the banking community. The result shows that the banking sector of Bangladesh is taking necessary steps to comply with Basel II requirement under the guidelines of Bangladesh Bank. The capital requirement under Basel II regime increased due to additional burden of capital from Market Risk and Operational Risk. There are many possible negative impacts of an unchecked implementation of Basel II. However, Basel II is here to stay and the competitive forces will compel banks to follow the example. The option here is to decide what form of the Basel II norms should be applied and to what extent to ensure the survival and growth for the developing economies. Ultimately, the norms are for strengthening the banking systems globally and this objective should not be lost. Bangladesh Economies need to be prepared and to adapt to the changing global conditions and to adapt the norms to their own advantage.

This study examines both the quantity and price of risk exposure for different segments of ®nancial intermediaries. Overall, we ®nd evidence of market segmentation in the U.S. ®nancial services industry. Speci®cally, we ®nd that securities ®rms, consistently over the sampling period 1974±1994, had the most market risk exposure with the lowest market risk premium. Banks' market risk¯uctuated over the sampling period. Banks increased their market risk-taking after the shift in monetary target in October 1979 and the announcement of the risk-based capital requirements in July 1988. The banks' market risk became the highest and insigni®cantly different from securities ®rms'. The results are consistent with the moral hazard argument; that is, banks took on more risk to take advantage of government guarantees as their charter value declined. Banks were subject to relatively high interest rate risk premium. However, in response to increased interest rate volatility and decreased charter value after October 1979, banks (while they increased their market risk exposure) lowered their interest rate risk exposure to an insigni®cant level. The result suggest that the federal safety net may have been perceived by the market as covering only market risk but not interest rate risk. Overall, we ®nd little evidence of interest rate risk exposure, suggesting the prevalence of hedging programs using interest rate derivatives. The interest rate risk premiums, unlike the risk exposure, differ across ®nancial intermediaries.

In the financial crisis of 2007, many banks with high level of Non-performing loans (NPLs) found their sources of capital dried up, which occurred because of bad management. Huge amounts of NPLs imply both a lack of management methods and lack of capital. Also, high NPL levels have resulted to negative effects to banks’ lending activity, making bank officers-managers more concern for the future of the whole banking system. The purpose of this study is twofold. First, to present some NPL management methods that already exist in the literature and second, to make a clear distinction between the ex-post and ex-ante management of NPLs. I tried to collect in one paper what other researchers suggested for the proper management and fight against NPLs for different kinds of banking systems around the world. Hopefully, by examining these methods, banks will be able to cope with the problem of NPLs.

This study aims to know and analyze and influence of intellectual capital on corporate performance, analyze the influence of intellectual capital through corporate perform to company value, analyze the influence of intellectual capital to company value, analyze the influence of banking risk through corporate, analyze the influence of banking risk through corporate performance to company value , analyze the influence of banking risk to company value, and analyze the influence of corporate performance value of company. This research is in the form of explanatory research by pooling the data used. This research was conducted on banking sector companies in Indonesia. Observations were made for four consecutive years such us: 2012-2016. Method of analysis of data used models of structural equation modeling (SEM). Result of this study shown: 1) Intellectual capital has a positive and significant effect to corporate performance, 2) Intellectual capital has no significant effect on firm value through corporate performance, 3) Intellectual capital has a positive and significant effect to company value, 4) Banking risk positive and significant impact on corporate performance 5), banking risk has a positive and significant impact on the corporate value through corporate performance, 6). Banking risk has a positive and significant impact on corporate value, 7) Corporate performance has a positive and significant impact on firm value.

The global financial crisis highlighted clearly the need for better regulation and supervision of the financial sector. As far as deposits, citizens suddenly realized that different levels and forms of depositor protection co-existed in the EU. Because of the possible spreading of bank runs all over the world, deposit insurance schemes (DGSs) became more common, and also countries where they did not exist, they began to set up them, like Australia and New Zealand. On the other side, in countries where the schemes were already adopted, an overhaul of the main characteristics of these schemes started. In this research, differently from previous papers, we want to answer two main research questions. The first one considers the fact that the new European Directive requires that DGSs' funding arrangements are risk based pricing systems able to minimize the moral hazard risk. This is something new which tend to make banks evaluated/supervised by the DGSs similarly to the firms evaluated by the banks when the latter lend money to the former. More importantly, the second research question aims to analyze the main characteristics of a prospective harmonized European DGS, by comparinga how the US Federal Deposit Insurance Corporation (FDIC) works in the U.S.