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Managing Risks in Commercial and Retail Banking by AMALENDU GHOSH

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CHAPTER 5

Risk Management Systems and Processes

5.1 RISK MANAGEMENT POLICY

The risk management philosophy of the bank is revealed through the risk management policy statement, which is the formal commitment of the board of directors to administer an efficient risk management system. The risk management policy document describes the course of risk-taking activities to minimize the losses from risks. Between banks, business activities and business focus differ, and more importantly, the risk-bearing capacity differs, and it is therefore difficult to conceive of a model document on risk management policy. Each bank should have its own risk management policies based on its resources, expertise, strengths, and weaknesses. While risk management policies are unique to each bank, certain similarities in characteristics exist as most of the risk management issues are common.

Corporate goals and corporate vision dictate the tone of the risk management policy. The policy document should contain guidelines regarding risk acceptance levels for different types of transactions and activities, disclose the bank's risk appetite, and specify the risk limits that are applicable during the financial (accounting) year. The document should emphasize the management's commitment to promote risk management systems and processes as an obligation under the corporate governance system and convey the management's determination to follow a high standard of risk management practices in the pursuit of business. ...

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