Risk Management Articles

Latest risk management articles to help you better understand the complex world of Risk management. If you would like to submit your articles of interest, do write to manoj.jain@riskpro.in and we will surely include your articles in this section.


Is Reputation risk a separate risk type : Article 2 of 10

There is growing debate as to whether reputation risk is a unique risk type or is it a consequence of other risks. So, for examples, in banks, the major risk types are credit market and operational. If the Bank has been able to properly manage these risks, then it is unlikely that it will have significant impact due to reputation risk.

Taking a few examples to prove this point.

Classic example of Integrated Risk Management

I want to take an example from our real life to showcase how integrated risk management works in real life situation.

Case Study:
A man with mild hypertension was asked by the Doctors to take precautions, reduce salt intake by a third, start excercises and walk for about 45 mins a day. The man, who was very committed to ensuring that he controlled his hypertension with lifestyle change, took the following steps.

1. He reduced his salt intake to almost negligible levels.
2. He changed from regular milk to low fat milk
3. He straight away went for walks upto 5kms daily.

Frauds in India: The untold story

We read about a lot of frauds in local newspapers. Bank branches targeted, some person duping others with fraudulent schemes etc. These stories are those that are known and told. However, these instances form a very small portion of the actual occurrences. There may be many more such frauds that are currently ongoing, but which remain undetected.

Does strong internal control framework mean reduced operational losses

Operational risk is a big buzzword in today’s landscape. A lot of recent operational losses running in billions of dollars is worrying and most of them seem to be in the financial services industry.

A lot is done to manage operational risk across various types of industries. Corporates and Banks are enhancing their internal control structures, adopting technology etc to minimize losses.

There is frantic approach to implementing all possible solutions labeled as Operational Risk solutions that help organizations manage operational risk.

Derivative Losses in India- What went wrong

We have all read about the infamous derivative losses on Indian companies Balance Sheets. This article aims to address some points from both sides. A neutral introspection into what really happened.

It is quoted on the internet that "Forex derivative contracts to the tune of $3 trillion were traded in India as on December 2007 whereas the total foreign exposure of India was not more than $500 billion annually. Companies across sectors entered into derivative agreements with nationalised and private banks to safeguard their foreign exchange risks."

Operational Risk Defined

“The Basel Committee (2004) defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The committee indicates that this definition includes legal risk but excludes systemic risk and reputational risk.

Today, financial firms are paying a lot of attention on this aspect of risk management. And it is not surprising because although the losses from operational risk are low in probability, the magnitude of the losses are significant. Inface, the losses can sometimes wipe out all the capital of the firm.

Credit Crisis in USA

Besides erasing billion of dollars in stockmarket valuations, the sub prime credit crisis is deeper still. The US economy get a shake every once in a while due to these credit losses. But the real danger lies in extending mortgage loans to sub prime borrowers.

Until today, people with less than perfect credit score could buy a home and until recently could also afford one. But now due to high home prices and credit losses, they can neither afford homes, let alone qualify for a loan.

So what does Enterprise Risk Management mean

In simple terms, enterprise risk management or ERM mean the corporate wide integration of risk management initiatives so that the net impact of the risk factors are considered in an integrated way rather than in isolation.

Let us take one example for this discussion.

Financial Loss due to customer data theft

In America and in other parts of the world, customer privacy is taken very seriously. And right so, because of the implications of the theft of the customer information.

To illustrate, a common man in USA does his banking and other finance related transactions over the internet and over phone. Rarely does he visit the physical bank branches. And to do these transactions, he needs a set of personal identification information such as birthdate, Social Security number (SSN), home phone number, etc.

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