Risk Management in Banking Essay Example | Topics and Well Written Essays - 2250 words

Risk Management in Banking - Essay Example The new deposit account offered by Andrew Bank Ltd. may have a number of unforeseen risks, since the response of the target customers is unknown. Therefore, the management of the bank must adopt a risk management model that is effective enough to identify the future risks, the bank will be exposed to after introducing the Abide a Wee While Deposit Account. In order to measure risk, the key factors or risk factors that are likely to cause unpredictability in the returns from the new account should be considered (Crouhy, Galai and Mark, 2006). There are a number of problems associated with models of risk management, and which will help analyze the risks likely to face Andrew Bank after introducing the new bank offering. Some of the problems are discussed in details below. Risk management models are expensive in terms of, production and implementation: Creating a risk management model consumes a lot of time, since all the risk factors must be adequately analyzed, and all necessary information considered. The risk analysis manager must make sure that all the risk factors are identified, and that the relevant data concerning the factors is collected, so as to make more accurate predictions about the future. The risk factors that need to be considered include; lending rates, economic conditions, government policies and political environment among other factors. Models may be even more expensive, in situations where they prove to be ineffective, for example, where the model employed improperly manages an expected risk. The cost of preparing a model may even go higher, since its preparation require experienced personnel who must be compensated for their services. The models may not be reliable: Due to the unpredictable nature of the future, models can not be a hundred percent accurate. Therefore, a rigid model may lead to poor