Significance of Risk Management for Financial Institutions Financial Essay
This article attempts to highlight the importance of risk assessment and management in banks, focusing on the recommendations of the Basel II Accord. Since this global financial crisis was mainly caused by the risks associated with lending, this article will narrow down and focus more on it. Despite much discussion about banks' risk management and its perceived failure during the financial crisis, the basic patterns of risk management in financial institutions are not known and the key determinants of banks' risk management are not well understood. Since financial institutions play a key role in the macroeconomy and in the rapidly changing world of banking and finance, the importance of credit risk management in securing the stability and profitability of financial institutions cannot be overstated. Amid the prevailing economic uncertainties and the likelihood of an increase in borrower defaults, it becomes critical for banks and other lenders to implement 'Why Risk Management Matters'. 1. Protects the organization's reputation. In many cases, effective risk management proactively protects your organization against incidents that could damage its reputation. “Franchise risk is a concern for all companies,” says Simons in Strategy Execution. “However, it is above all urgent. Risk Management RM is a term synonymous with various areas of human endeavor. Risk management was defined by Baffa 1990 as planning and controlling everything. Oluyombo, OO.