| Topic : Credit risk management in banks |
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Posted in Community :
Credit Risk Management
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Activity:
29 views;
last activity : 04 12 2011 08:28:03 +0000
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by hannah
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How to draw the line between acceptable and unacceptable risks
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Does centralization or decentralization of risk management deliver more value?
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If you were an analyst and wanted to make a mailing in which the total credit offered was below your risk capital limit, you could proceed with no other approvals. And you could still exceed your own limit without centralized approval by assembling a syndicate of peers who together were willing to contribute enough of their own risk capital to cover the mailing. In undertaking a huge risk, you might still have to get approval from a higher-level manager, but you and your peers could manage most of your own risks in a decentralized way.
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Evaluating each risk factor to determine at least two ranges of risk level values
for each risk factor, one range containing unacceptable risk level values, the other range containing acceptable risk level values. I think one of the most challenging work in credit management is working out where the fine line between acceptable and unacceptable risk levels is – it’s always a balancing act. |
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Can companies have managed this risk in other—more decentralized—ways? I think so. Here is one possibility: Instead of having a centralized manager sign off on the terms of every mailing, each analyst could have a pool of risk capital. If you were an analyst and wanted to make a mailing in which the total credit offered was below your risk capital limit, you could proceed with no other approvals. And you could still exceed your own limit without centralized approval by assembling a syndicate of peers who together were willing to contribute enough of their own risk capital to cover the mailing. In undertaking a huge risk, you might still have to get approval from a higher-level manager, but you and your peers could manage most of your own risks in a decentralized way. |
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