There are several different types of banks out there. The first type is a central bank which oversees the circulation of money on behalf of the government and helps to regulate the supply of money. A commercial bank accepts and handles deposits and pools these funds in order to provide credit by the direct method of lending or indirectly investing in capital markets. And finally there is a savings banks, also known as a building society within the United Kingdom which shares similarities with savings and loan associations.
There are lots of different types of risks in banking. These include a credit risk, market risk, liquidity risk, operational risk, reputational risk, volatility risk, settlement risk, profit risk and systemic risk. Each of these types has other risk types included in their category.
Firstly we have a credit risk, which is the risk of an investor, who has lent money to the borrower, who does not make the return payments as originally agreed. There are a number of circumstances where a credit risk may arise such as a consumer or a business missing payments on a mortgage or any other type of loan, a business or consumer who does not pay an invoice when it is due, a business who does pay an employee's wages when they are due and many others.
Secondly we have a market risk, which is the risk that an investment or trading portfolio will decrease in value due to change in the market. This risk can also be related to a volatility risk which is the risk of a portfolio price change due to changes in the volatility of any risk factor.
Thirdly, a liquidity risk is the risk that an asset or security cannot be traded quickly enough after receiving it so that the value drops. The two types of liquidity risk include asset liquidity and funding liquidity.
An operational risk is the risk that comes from the execution of a company's business functions. This category can also include fraud risks, physical risks, legal risks and environmental risks.
A reputational risk is, as suggested by the name, a risk which endangers the reputation of a well respected company.
There are lots of different types of risks in banking. These include a credit risk, market risk, liquidity risk, operational risk, reputational risk, volatility risk, settlement risk, profit risk and systemic risk. Each of these types has other risk types included in their category.
Firstly we have a credit risk, which is the risk of an investor, who has lent money to the borrower, who does not make the return payments as originally agreed. There are a number of circumstances where a credit risk may arise such as a consumer or a business missing payments on a mortgage or any other type of loan, a business or consumer who does not pay an invoice when it is due, a business who does pay an employee's wages when they are due and many others.
Secondly we have a market risk, which is the risk that an investment or trading portfolio will decrease in value due to change in the market. This risk can also be related to a volatility risk which is the risk of a portfolio price change due to changes in the volatility of any risk factor.
Thirdly, a liquidity risk is the risk that an asset or security cannot be traded quickly enough after receiving it so that the value drops. The two types of liquidity risk include asset liquidity and funding liquidity.
An operational risk is the risk that comes from the execution of a company's business functions. This category can also include fraud risks, physical risks, legal risks and environmental risks.
A reputational risk is, as suggested by the name, a risk which endangers the reputation of a well respected company.
