risk of direct or indirect loss resulting from external events.

such as ✅ physical causes ✅ personal failure ✅ misleading information ✅ liability for accidents and others.

External Aspects: market environment, credit situation & other risk condition.

such as ❤ interest rates ❤ exchange rates ❤ securities prices ❤ commodity prices

occurs when financial system suffers from a failure.

is probability that a loan will not be repaid or there will be a default in payment.

potential that a bank borrower or counterparty will fail to meet its obligations.

Basel I: focused on credit risk where the financial institutions are required to maintain their capital.

Basel II: revealed numerous in accurately managing credit risk during financial crisis.

Basel III: provide more effective regulations about addressing credit risk.

defined as the exposure of a banking & financial condition movements in interest rates.

the bank makes profit by paying lower interest rates on its liabilities.

creates interest rate risk which in the case of interest rates will rise in the banks that causing the bank to pay more for its liabilities.

is a financial risk that exists when a financial transaction is denominated in a currency other than the currency of the origin country.

if the exchange rate of the foreign currency falls, both the interest payments & the principal repayment will be worth less than when the loan was given that reduces bank's profits.

currency must be converted to another currency to make a certain investment.

many foreign loans are paid in US Dollars & repaid with dollars.

it will affect international banking & financial institutions' behavior.

unstable political environment will affect in changes of government policy

arises when bank has to meet its obligations as they come due without incurring losses.

Funding Liquidity Risk: when a firm is unable to obtain sufficient funds to meet cash flow obligations.

Market Liquidity Risk: inability to conclude a large transaction near the current market price.

sea & transport are exposed to many types of additional risks.

the language, value of time, customs & lifestyles.

key policy decision is whether there should be a single bank supervisory authority or multiple bank supervisors

the strongest reason for some to advocate a single bank supervisory authority is the fear of competition in laxity between multiple bank supervisors

countries must also decide whether to assign responsibility for bank supervision to the central bank

can help it identify and respond to the emergence of a systemic problem in a timely manner

those pointing to the disadvantages of assigning bank supervision to the central bank stress the inherent conflict interest between supervisory responsibilities and responsibility for monetary policy

financial conglomerates that operate in the banking, securities, and insurance sectors are among the most powerful MNCs in many countries

the most significant argument against a supervisory authority with broad scope is that it would result in an undue concentration of power that would otherwise be dispersed among several agencies

this would increase the likelihood of regulatory capture and retard financial innovation

these dimensions include enforcement powers, the degree of disclosure supervisory authorities must comply with, and the independence of supervisory authorities

it is proportionately more common for the high-income countries to provide greater independence to bank supervisors than countries in the three other income groups

CDO is an option to buy protection or sell protection as a credit default swap on a specific maturity.

A credit spread / net credit spread involves a purchase of one option and a sale of another option in the same class & expiration but different strike prices.

CDS is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a loan default or other credit event.

example:- drug trafficking, arms smuggling, trafficking in stolen art, body parts, nuclear secrets, and weapons, money used by terrorist groups, kidnapping for ransom, etc

placement of currency into a banking and financial institutions eg commercial bank, brokerage house, investment bank.

Seller of the CDS insures the buyer against some
reference loan defaulting.

In the event of default the buyer of the CDS receives compensation usually at the face value of the loan & the seller of the CDS takes possession of the defaulted loan.

the movement of funds from one institution to another institution in order to disguise the original source and ownership of the funds

the time when the funds, having been laundered are reinvested into a legitimate business

appoint one or more officers at the senior management level to be the compliance officer responsible for the submission of suspicious transaction reports to the Financial Intelligence Unit in Central Bank

provides training and guidance to staff in the operation of procedures and controls relating to anti-money laundering

provides a forum for regular cooperation on banking supervisory matters

to improve understanding of fundamental supervisory aspects and increase the quality of banking supervision worldwide

Is essentially to pre-identify certain key
factors that determine & probability of
default & combine / weight them into a
quantitative score.

the purpose is to encourage convergence toward common approaches and standards

included interest rate ceilings, restrictions on the range of products supervised financial institutions could offer, capital controls and high effective tax rates

provision of some or all of the following services including low or zero taxation, moderate or light financial regulation, banking secrecy and anonymity

the purposes is a country may implement regulatory measures in contravention of its GATS obligations and commitments so long as they are taken for prudential reasons, including the protection of depositors, policy holders

In general, International Banking involves in business risk implies the possibility of some unfavorable event happen in the future.

However, the degree of such risk is not the same,
it differs from one institution to another
institution & from one country to another
country.

the assets and liabilities sides of a bank's balance sheet are fully integrated

the depositors enter into a Mudharabah, profit sharing contract with the bank to share the overall profits accruing to the bank's business

depositors act as capital providers or financier by providing funds and bank acts as an entrepreneur by accepting them

Managing risks can limit the probability of bank failure.

Hence, all types of banking and financial institutions have to continuously strengthen their global position so as to become more competitive and sustainable.

the enters into Mudharabah contracts with agent-entrepreneurs who search for investable funds and who agree to share profits with the bank according to a certain percentage stipulated in the contract

Banking crises, rapid structural change and the continuing globalization, liberalization and integration of international banking have led national and multilateral policy makers to focus increased attention on the crucial role of banking supervision.

are assumed to be placed as Amanat (safekeeping), thus they are considered to belong to the depositors at all time

cannot be used by bank as the basis to create money through fractional reserves

used to finance risk-bearing investment projects with depositors. full awareness