CHAPTER 5 INTERNATIONAL BANKING RISKS (TYPES OF INTERNATIONAL RISKS…
INTERNATIONAL BANKING RISKS
International business risk defined as the possibility of loss caused by some unfavourable / undesirable event in international business (banking & financial institutions) operations.
TYPES OF INTERNATIONAL RISKS
Operational risk is the risk of direct / indirect loss resulting from inadequate / failed internal processes, people & systems / from external events.
Two key element
It is the risk of losses in on- and off-balance sheet positions arising from movements in market prices / rates, including interest rates, exchange rates, securities prices and commodity prices.
Def: The probability that a loan will not be repaid / there will be a default in payment.
Another def. : the potential that a bank borrower / counter party will fail to meet its obligations in accordance with agreed terms.
Can be defined as the exposures of a banking & financial condition to adverse movements in interest rates.
Also refer to political risk
FOREX risk is a financial risk that exists when a financial transaction is denominated in a currency other than the currency of the origin country.
Arises when bank has to meet its obligations as they come due without incurring losses.
Market liquidity risk
Funding liquidity risk
Long distance between countries – goods dispatched by shipping/ airways
-Culture differs from one country to another.
-As a result a firm faces additional risks.
Bank internal risk assessment models
Credit scoring system – the traditional approach
Value at risk (VaR) – The modern approach
Credit default option (CDO)
Credit default swap (CDS)
Credit forward agreement (CFA)
Supervision and regulation on international banking
1.Whether there should be a single bank supervisory authority / multiple bank supervisors
2.Whether there should play a role in bank supervision
Whether the supervisor responsible for the banking industry should also have responsibility for other financial services such as the securities & insurance industries.
few approaches in supervisory and regulatory of IB
Bank supervisory role of the central bank
Scope of supervisory authority
Supervisory approach of countries
Anti-money laundering (AMLA) regulations
3 stages of money laundering
The Basel committee on banking supervision (BCBS)
Offshore financial centres (OFCs)
Banking and the world trade organization (WTO)
Islamic banking supervision and regulation
2 systems of operation
Single bank supervisor / multiple bank supervisors