RISK MANAGEMENT

Risk Management and New Economy

Risk Management and New Economy

Introduction

From the last decade risk management is the most researched and exciting area in the financial industry as it elaborates how to minimize and avert the hazard of risk from the portfolios of different assets and from the operations of financial institutions. Regulators and depositors mainly emphasize the risk management and according to them risk management is an essential ingredient to enhance the value of shareholders and increase their level of confidence. Risk management is the assessment of risks to mitigate, monitor and control the probability or impact on uncertain events. Risk management methods vary from industry to industry for instance it cannot be same for project management, industrial process and financial portfolios. As a management view point risk management is an important tool which is the used in decision making because it is systematic and well structured. For better utilization of risk management in management's decisions, risk analyst's reports must be based on the latest and best available information. The cause behind the mentioning of the Chinese proverb above is that risk management is the only tool which differentiates good management with bad. From a bank's standpoint, the term is usually used synonymously with specific uncertainty because the usage of statistics allows us to quantify the uncertainty which is called the measure of dispersion.

The Aims/Objectives of Risk Management

We have seen that extreme market movements happen with some regularity and that financial risk can be taken in many ways, some of them rather complex. There is a long and inglorious history of financial losses resulting from failing to manage these financial risks. Shareholders, regulators and other stakeholders have very little tolerance for the bad news. At its broadest, then, risk management is a process to ensure that undesirable events do not occur. Good risk management requires: An understanding of the risks being taken; a comprehensive definition of the firm's risk appetite; allowing opportunities to be exploited within the risk appetite; but ensuring that risks outside it are not taken.

So specifically there are three components: Risk Measurement: discovering what risks the organization is running; Action, if required; Culture to ensure that the process work. Often institutions suffer risk management problems when only the first to these receives sufficient attention (Levy-Yeyati et al, 2011, pp. 301).

From the Director's Prospective

The concept of risk implications from the view points of directors of the organizations is quite straightforward, as every director, manager wants to support his company and save it from all kinds of losses, especially the financial losses. The main objective of the directors and managers is to increase the surplus of the organization and abridging different losses, which may hurt the long run of an organization. The top dogs of every firm are always looking forward to seeing the bottom line healthy of the organization. The main thing on which the head of the firms have to accentuate is the financial and non financial expenses.

Systemic Risk and Banking reforms

The rising concern about ...