9 Types of Risks in Banking (2024)

FAQs

What are the 9 types of risk in banking? ›

The OCC has defined nine categories of risk for bank supervision purposes. These risks are: Credit, Interest Rate, Liquidity, Price, Foreign Exchange, Transaction, Compliance, Strategic and Reputation. These categories are not mutually exclusive; any product or service may expose the bank to multiple risks.

Risk Management is an important aspect of the Bank's policies. Risk is the possibility of a decrease in economic benefit in the event of a monetary loss or an expense or loss related to a transaction or activity of a bank.

The major risks faced by banks include credit, operational, market, and liquidity risks. Prudent risk management can help banks improve profits as they sustain fewer losses on loans and investments.

Risks are classified into some categories, including market risk, credit risk, operational risk, strategic risk, liquidity risk, and event risk. Financial risk is one of the high-priority risk types for every business. Financial risk is caused due to market movements and market movements can include a host of factors.

1 Risk identification

You can use various methods to collect and analyze information about the internal and external environment, such as interviews, surveys, audits, reports, historical data, scenarios, and SWOT analysis.

In 2024 sluggish economic growth and high interest rates combine with the persistent cost of living crisis to produce a challenging backdrop. It will mirror 2023 in terms of uncertainty, but each year presents unique challenges. Adapting to pressure from several factors will be key for financial services firms.

Seven of the 33 banks with more than $100 billion in assets are above the threshold. The Bank of New York Mellon has a 100% ratio of uninsured deposits, followed by State Street Bank, 92.6%; Northern Trust, 73.9%; Citibank, 72.5%; HSBC Bank, 69.8%; J.P Morgan Chase, 51.7% and U.S. Bank, 50.4%.

What are the 5 types of financial risks? ›

Many analyses identify at least five types of financial risk: market risk, credit risk, liquidity risk, operational risk, and legal risk.

IHS Markit's Banking Risk scores are reported on a 0–100 scale, with 0 equivalent to no risk of a banking crisis and 100 equivalent to extreme risk. These scores are broken out into seven scoring buckets that are conceptually and illustratively benchmarked to a generic AAA to D rating scale.

As indicated above, the five types of risk are operational, financial, strategic, compliance, and reputational. Let's take a closer look at each type: Operational. The possibility that things might go wrong as the organization goes about its business.

Financial institutions face different types of credit risks—default risk, concentration risk, country risk, downgrade risk, and institutional risk.