So the public has this idea that banks are stable mainly because of the backing they have from the government and other institutions. They are thought to be the top of all financial services and because of this, they are safe. But even banks face a lot of risks and its Is the highest levels of risks that is capable of dissolving the bank. There are many but we will discuss only 4:
Credit risk is the most obvious risks. The banks mush determing the chances which a customer or a load taker will payback what he took from the bank. Before the 1990s , there was no technological advancement and so it was hard to figure out whether people would actually pay back the loan or not. But today with technology and social media on board, we are able to predict with software and AI based on their lifestyle and other varialbles whether they will pay back the loan or not. There are the terms and conditions you will have to follow but it will be easier for them to pay you your money back well when you repay your entire loan amount that you took from the beginning.
These are the risks that come from within . they are made internally and will mess things up really badly. Just know that this is made on a day to day basis and can be reakdealt with easily. However inadequate bank controls and emplyees accountabilities can lead to some serious damage.
You can add more internal rules and other things but bending the rules is far too common in the banking industry. When you have unity within you team and members of the bank, then you are able to do much more work at lesser amount of time. When you have a strong connection, most of the employees wont want to break the rules of the bank and when this happens, work is done in a clean , legal manner.
When the markets decide to go down, it also affects the banks as well as they would lose money on their assets. To manage market risks is the most essential thing that is needed for todays banks, especially because the markets are volatile in nature. Managing this types of risk isn’t new as it is is being seen as a very pressing manner for the past ten years or so.the best strategy for dealing with this type of risks is through diversification. Making sure that the assests are in a wide range of investments will help limiting these risks
When you have been spread too thin because of the volatility of the marker, it is known as liquidity risks. You will not be able to stay in operation if you ran of funds. This will always be a risks form modern banks and this will be best for the banks to improve on their policies as well.