1. Econ 470: Seminar in Economics Bank Risk Management

2. Risk What is risk? Risk:  “Danger, or the possibility of danger, defeat or loss” --- Cambridge Dictionary of American English  “The possibility of loss or injury” --- Merriam-Webster’s Dictionary  “The probability of a loss or threat” --- Wikipedia

3. Risk Two common characteristics:  Exposure to “bad things”  Uncertainty Definition of Financial risks: The concept of financial risks denotes a potential (negative) impact to an asset that may arise in the future.

4. An Example: Bank Risk Management Essential questions for a risk manager:  Attribute: what kind of risk will be caused?  Quantification: how much could the bank lose?  Assessment: Is the risk worth being taken compared with the return?  Treatment: Passive: Can the bank absorb the loss? Active: How to reduce the risk without significantly reducing the return?

5. Anatomy of A Bank CEO Retail Banking Brokering Private Banking Mortgages Credit Cards Checking & Lending Asset Management Corporate Banking Underwriting Mergers & Acquisitions Sales & Trading Commercial Finance Research InsuranceSupport Financial Reporting Risk Management Operations Audit & Compliance Information Technology