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Why risk management?

Require rm to remain vibrant

Incentive to manage risk by regulator (carrot/stick)

Risk return relationship

Add value to stakeholder, immediate profits

Yes Bank Saga

Yes else to make higher profit banks may take unnecessary risk and may lead to domino effect

800 word assignment

Why do banks fail inspite of BASEL norms? Why do banks fail?

Loss given default

Probability of default

EAD

RAROC = LGD*EAD*PD

Q) Do banks require regulations to ensure that they can manage their risk?    
 
To identify and measure risks and take appropriate steps To mitigate them. They have to follow RBI
guidelines for compliance 
Regulations ensure uniformity among all the banks while reporting/ disclosing earnings, reduces risk of
fudging up numbers 
 
Summary -  
Originate and hold model – Take short term deposits and create long term loans 
Originate to distribute model -  
Risk adjusted return on capital 
Regulatory capital – meet min capital requirement 
Economic capital – set aside FIs to support business decisions 

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