Risks That Bank Faces

Essay by lilylee8321University, Bachelor'sB+, August 2010

download word file, 13 pages 0.0

Bank plays a main role as a financial intermediary. They collect money from the people who have the surplus and lend them to units in deficit (Case, B., Girardone, C., & Molyneux.p., 2006). The whole process seems simple theoretically, however, it is not as easy to achieve as what it looks like in the practical world. Bank faces lots of risks by day to day practice, e.g. with the whole economic circumstance change the interest rate will goes up and down, it may attract people deposit more when it goes up or borrow more when the interest goes down, this may cause the big different between bank liabilities and bank assets. The market risk incurred in the trading of assets and liabilities due to changes in interest rates, exchange rates, and other asset prices (Saunders, A & Cornett, M.M. 2006) In addition, when people deposit their money in the bank they expect low-risk, short term and high return.

Whereas, the people who in the opposite position, e.g. the people who make loans they expect should be large size, long-term and lower interest pay back. Interest rate risk may arise when different requirement mismatch to each other. Liquidity risk may occur at same time if bank don't have enough liquidate assets for a sudden surge in liability withdraw. Moreover, bank also faces credit risk when borrower can not make their repayment on time or default to make it. In addition, off-balance sheet risk, operational risk, strategy risk and regulatory risk also have been faced by bank nowadays.

On the following content we will choose three banks from each country between New Zealand and Australia that are ANZ National Bank, Bank of New Zealand and TSB bank, Bendigo Bank, Commonwealth Bank and Westpac Bank Australia respectively. And we will identify risks that...