Bank Management Concepts

This is the current and prospective risk to earnings and capital arising from adverse business decisions or improper implementation of business decisions. Many senior managers do not fully understand the strategic and technical aspects of Internet banking. Spurred by competitive and peer pressures, banks may seek to introduce or expand
Internet banking without an adequate cost-benefit analysis. The organization structure and resources may not have the skills to manage Internet banking.

In other words, will the bank get it right? Will it make the right choices when it comes to investing in e-banking or will it waste money by going down a technological blind alley?… Read the rest

This is the risk to earnings or capital arising from violations of, or nonconformance with, laws, regulations and ethical standards. Compliance risk may lead to diminished reputation, actual monetary losses and reduced business opportunities. Banks need to carefully understand and interpret existing laws as they apply to Internet banking and ensure consistency with other channels such as branch banking. This risk is amplified when the customer, the bank and the transaction are in more than one country. Conflicting laws, tax procedures and reporting requirements across different jurisdictions add to the risk. The need to keep customer data private and seek customers’ consent before sharing the data also adds to compliance risk.… Read the rest

Liquidity risk is the uncertainty arising from a bank’s inability to meet its obligations when they are due, without incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned changes in market conditions affecting the ability of the bank to liquidate assets quickly and with minimal loss in value. Internet banking increases deposit volatility from customers who maintain accounts solely on the basis of rates or terms. Increased monitoring of liquidity and changes in deposits and loans maybe warranted depending on the volume and nature of Internet account activities. In a nutshell, the Internet allows all transactions to occur in real time.… Read the rest

Credit risk is the risk to earning and eventually capital, arising from a borrower’s failure to meet the terms of a credit contract with the bank or otherwise to perform as agreed. It is found in all activities where success depends on counterparty, issuer, or borrower performance. It arises any time bank findings are extended, committed, invested, or otherwise exposed through actual or implied contractual agreements, whether on or off the bank’s balance sheet.

Internet banking provides the opportunity for banks to expand their geographic range. Customers can reach a given institution from literally anywhere in the world. In dealing with customers over the Internet, absent of any personal contact, it is challenging for institutions to verify the bona fide of their customers, which is an important element in making sound credit decisions.… Read the rest

The most important category of risk management for e-banking services is transcation risk or operational risk. Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. The main causes for operational risk can be:

• Inadequate Information Systems
• Breaches in internal controls
• Fraud
• Processing Errors
• Unforeseen catastrophes

The inadequate information system can result from general risks or from application oriented risks. The general risks can include physical access to the hardware, logical
access to the information and communication technology systems, emergency management or from an insufficient backup recovery measures-mitigate the consequences of system failures.… Read the rest