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3 rd Midterm Review. Dr. Bader Alhashel. Types of Risks Incurred by Financial Institutions. Why Financial Institutions Need to Manage Risks Credit Risk Firm-specific credit risk Systematic credit risk Liquidity Risk Interest rate risk Refinancing risk Reinvestment risk.

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3 rd midterm review

3rd Midterm Review

Dr. Bader Alhashel

types of risks incurred by financial institutions
Types of Risks Incurred by Financial Institutions
  • Why Financial Institutions Need to Manage Risks
  • Credit Risk
    • Firm-specific credit risk
    • Systematic credit risk
  • Liquidity Risk
  • Interest rate risk
    • Refinancing risk
    • Reinvestment risk
types of risks incurred by financial institutions1
Types of Risks Incurred by Financial Institutions
  • Market risk
  • Off-Balance-Sheet Risk
  • Foreign exchange risk
  • Country or Sovereign risk
  • Technology & Operational Risk
  • Insolvency Risk
  • Other risks & interaction among risks
managing credit risk on the balance sheet
Managing Credit Risk on the Balance Sheet
  • Credit Risk Management
  • Credit Analysis
    • Real Estate Lending
      • Gross Debt Service Ratio
      • Total Debt Service Ratio
      • Credit Scoring System
    • Consumer and Small-Business Lending
    • Mid-Market Commercial and Industrial Lending
      • Five C’s of Credit
      • Cash Flow Analysis
managing credit risk on the balance sheet1
Managing Credit Risk on the Balance Sheet
  • Mid-Market Commercial and Industrial Lending (cont.)
    • Ratio Analysis
      • Liquidity Ratios
      • Asset Management Ratios
      • Debt & Solvency Ratios
      • Profitability Ratios
    • Large Commercial & Industrial lending
      • Credit Scoring Models
managing credit risk on the balance sheet2
Managing Credit Risk on the Balance Sheet
  • Calculating the Return on a Loan
    • Return on Assets (ROA)
    • RAROC Models
managing liquidity risk on the balance sheet
Managing Liquidity Risk on the Balance Sheet
  • Liquidity Risk Management
  • Causes of Liquidity Risk
    • Fire-sale prices
  • Liquidity Risk & Depository Institutions
    • Liability Side Liquidity Risk
      • Net Deposit Drain
      • Purchased Liquidity
      • Stored Liquidity
    • Asset Side Liquidity Risk
managing liquidity risk on the balance sheet1
Managing Liquidity Risk on the Balance Sheet
  • Liquidity Risk & Depository Institutions (cont.)
    • Measuring a Bank’s Liquidity Exposure
      • Sources & Uses of Liquidity
      • Peer Group Ratio Comparison
      • Liquidity Index
      • Financing Gap & the Financing Requirement
      • BIS Approach: Maturity Ladder/Scenario Analysis
      • Liquidity Planning
managing liquidity risk on the balance sheet2
Managing Liquidity Risk on the Balance Sheet
  • Liquidity Risk & Depository Institutions (cont.)
    • Liquidity Risk, Unexpected Deposit Drains, & Bank Runs
      • Bank Run
      • Deposit Drains & Bank Run Liquidity Risk
      • Bank Panic
    • Bank Runs, the Discount Window, & Deposit Insurance (or Guarantee)
      • The Discount Window
managing liquidity risk on the balance sheet3
Managing Liquidity Risk on the Balance Sheet
  • Liquidity Risk & Insurance Companies
    • Life Insurance Companies
    • Property-Casualty Insurance Companies
  • Liquidity Risk & Mutual Funds