Risk management is the heart of all banking institutions. Few wonder why regulators have been so outspoken on managing risk, or question why there have been multiple regulations around the subject; CRD4, Basel-3, Liquidity Reporting and recently, BCBS 239/RDA (Risk Data Aggregation). In this opinion piece Senthil Radhakrishnan, vice president and head of Capital Market Solutions Group – Virtusa outlines the main risk groups and how to measure them effectively.
On one hand, the government wants banks to take risks in lending money, which is a key element of entrepreneurship, jobs and the well-being of society; extreme conservatism could make banks unviable and customers could end-up paying fees on their deposits. Yet, on the other hand the government is worried that banks may take excessive risk, which could make them fail. And when a bank fails, the fallout from depositors losing money or a damaging government bailout is significant.