7 Types of Risks Taken By Banks

Banks and financial systems face a multitude of risks that a regular individual may not even be aware of. Though responsible banks and their branches, such as the columbia bank sayreville take multiple measures to avoid such risks. Here is a list of the 8 types of risks taken by banks.

Operational Risk

These are the risks that arise due to faults in the management activities. With the upsurge of digitalization, the number of mistakes in daily banking activities has also escalated.

Moral Hazard

It occurs when an institution or individual takes high-level risks, knowing that they will bear the profits but not its negative repercussions. Youngsters may be taking the risk of falling ill, thinking they have health insurance as a backup.

Credit Risk

Credit risk occurs when borrowers fail to pay their loans in time. As the unemployment rates are rising, credit risk is one of the most common types today.

Business Risk

One small mistake in selecting the wrong strategy may result in a bank being collapsed or acquired. Lehman Brothers is a prime example of such a risk.

Reputational Risk

Today’s situation has diverted the dependency of citizens on banks in terms of e-wallets and cashless payments. Banks will face the risk of losing customers if they do not follow fair practices.

Columbia Bank
270 Main St, Sayreville
NJ 08872, United States
Phone: +1 732-432-9680

Market Risk

Banks give out loans on securities and commodities (gold, silver), making them prone to equity and commodity risks. With high market volatility in the current scenario, these risks have taken a toll.

Liquidity Risk

Such a risk may occur in case the bank is not able to give back the depositor’s money. Due to a boost in unemployment, more citizens are reaching out to procure their deposits. It can lead to banks facing these risks.

Final Words

Banks are prone to risks despite various preventive measures. Management skills and a strong capital backup are the ultimate saviors of banks in such situations.