• All banking and financial institution

• exposed the same form of risk and most of the time failure of one bank will give impact to others

• Risk? It can be defined as the chance that an investment's actual return will be different than expected

• All banking and financial institutions have to continuously strengthen their global position to become more competitive and sustainable

• International business risk defined as the possibility of loss that cause by some unfavourable event

- Internal Factor - Losses and breakdown caused inefficient management, physical caused, personnel failure, misleading information

- External Aspect - Market environment, credit situation and other risk condition

• Risk of direct and indirect loss resulting from failed in internal processes, people and system and from external events

• Risk of losses in on and off balance sheet positions arising from movement in market prices and rates

- Systematic risk - caused by the movement in the prices of all market instruments

• Unsystematic Risk - the price of instruments because of events related to the issuer of instruments

• The probability that a loan will not be repaid or there will be a default in payment

• Basel I - banking and financial institutions have to maintain their capital levels equal to 8% of risk-adjusted assets

• Basel II - has revealed many loopholes in accurately managing credit risk during the financial crisis

• Basel III - had to provided more effective regulations about addressing credit risk

• International bank trade large amount of currencies which definitely will expose them to FOREX risk

• If the exchange rate of foreign currecy falls - Interest payment and principal repayment will be worth less than when the loan was given

• Exist when a financial transaction is denominated in a currency other than currency of the origin country

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

• an option to buy or sell protection as a credit default swap on a specific reference credit with a specific maturity

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

• Buyer of CDS receives the compensation usually at the face value of loan

• financial swap agreement that seller will compensate the buyer in the event of a loan default

• Hedges against an increase in default risk on a loan

• CFA specifies a credit spread

• to reduce their exposure to individual financial risks

• There has been an explosive growth in the use of credit derivatives in recent years

• Complex process of transforming individual loans into assets that may be purchased by investor

• Any changes in the currency exchange rate will cause that investment value either decrese or increase when the investment is sold and converted back into the currency of the origin country

• Makes foreign currency held in country more valueable

• Has an adverse effect on any economy

• Many foreign loans are paid in USD and repaid with dollars

• It constitutes the major constraint on foreign investment

• 2 types - Funding liquidity risk and Market liquidity risk

• Occurs when a firm is unable to obtain sufficient funds

• Arises when bank has to meet its obligations

• Sea and transport are exposed to many types of additional risks

• Due to long distance between countries, goods are despatched by shipping or airways

• Interest rate paid on deposit and short term borrowings is sensitive to shot term rates, interest rate earned on long term is fixed

• The exposure of a banking and financial condition to adverse movements

• Arise in the banking system when financial institutions act as asset tranformers

• Different in terms of language, value of time, customs and lifestyles

• As a result business firm faces additional risks

• It is a banking crises, rapid structural change and continuining globalization, liberalization and integration of international banking
• policy discussions specially focus on several issues that must be addressed
• it is to establishing and maintaining effective supervision

3 issues need to be addressed by the policy makers :

• whether there should be a single bank supervisory authority and multiple bank supervisors
• whether there should play a role in bank supervision
• whether the supervisor responsible for the banking industry should have responsibility for other financial services

Few approaches in supervisory and regulatory of International Banking

• Single Bank Supervisior or Multiple Bank Supervisors
• Bank Supervisory Role of the Central Bank
• Scope of Supervisory Authority
  -Supervisory Approach of Countries
• Anti-Money Laundering (AMLA) Regulations
• The Basel Committee on Banking Supervision (BCBS)
• Offshore Financial Centres (OFCs)
• Banking and the World Trade Organization (WTO)