02 May 2017 ~ 0 Comments

Risks and Bank Capital Regulation

A study of the main categories of risk– liquidity risk, interest rate risk, credit risk and capital risk and how they can impact the viability of a financial institution.

One of the most fundamental objectives of bank management is maximizing shareholder value. To maximize shareholder value, bank managers must address the risk-return trade off inherent in many of their day-to-day financial transactions. This paper examines the different types of risk which fall into four main categories liquidity risk, interest rate risk, credit risk, and capital risk and shows how crucial they are to maximizing shareholder value. Examples from real life bank figures are used to illustrate examples.

If a financial institution does not have enough liquid assets, then it is possible that a run on customer withdrawals could not be met. A common scenario in the Great Depression of the 1930′s, an inability to meet withdrawal demand can destroy the reputation of a financial institution. Carrying a disproportionately high liquidity risk has the https://essaylab.com/how_to_write_an_essay_in_mla_format potential to completely obliterate the good reputation best essay books of a financial institution, and ultimately result in the institution closing its doors.

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