9 Types of Risks in Banking (2024)

FAQs

What are the 9 types of risk in banking? ›

The OCC has defined nine categories of risk for bank supervision purposes. These risks are: Credit, Interest Rate, Liquidity, Price, Foreign Exchange, Transaction, Compliance, Strategic and Reputation. These categories are not mutually exclusive; any product or service may expose the bank to multiple risks.

The probability of loss that banks may suffer as a result of changes in ex- change rates due to all their foreign currency assets and liabilities. Interest Rate Risk: The probability of loss that the bank may be exposed to depending on the. position of the bank due to movements in interest rates.

The major risks faced by banks include credit, operational, market, and liquidity risks. Prudent risk management can help banks improve profits as they sustain fewer losses on loans and investments.

Risks are classified into some categories, including market risk, credit risk, operational risk, strategic risk, liquidity risk, and event risk. Financial risk is one of the high-priority risk types for every business. Financial risk is caused due to market movements and market movements can include a host of factors.

1 Risk identification

You can use various methods to collect and analyze information about the internal and external environment, such as interviews, surveys, audits, reports, historical data, scenarios, and SWOT analysis.

To manage these risks effectively, banks use a combination of risk assessment tools, risk monitoring systems, and risk mitigation strategies. Regulatory authorities often impose requirements on banks to have comprehensive risk management frameworks in place to ensure the stability and integrity of the financial system.

Risk is defined in financial terms as the chance that an outcome or investment's actual gains will differ from an expected outcome or return. Risk includes the possibility of losing some or all of an original investment.

Risk assets are assets that have significant price volatility, such as equities, commodities, high-yield bonds, real estate, and currencies.

3 The OCC has defined eight categories of risk for bank supervision purposes: credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation. These categories are not mutually exclusive.

Definition of risk

Risk can come in various forms and can be categorized into four main categories: financial risk, operational risk, strategic risk, and compliance risk.

What are the top 5 risk categories? ›

As indicated above, the five types of risk are operational, financial, strategic, compliance, and reputational. Let's take a closer look at each type: Operational. The possibility that things might go wrong as the organization goes about its business.

Types of risks. Investigation of the principal risks in banking, including credit risk, liquidity risk, interest rate risk, market risk, foreign exchange risk, and operational risk. Policies for managing credit risk. Management policies to reduce credit risk.