What are the main risks faced by banks and how does a bank attempt to manage these risks?

What are the main risks faced by banks and how does a bank attempt to manage these risks? What are the main risks faced by banks and how does a bank attempt to manage these risks? All companies which have a profit maximising objective hold a certain degree of risk whether through microeconomic or macroeconomic factors. Banks also face a number of risks atypical of non financial companies due to the payment and intermediary function which they perform. Recent changes in the banking environment has lead to an increased pressure to maximise shareholder value, this means that banks take on a higher risk in order to gain a higher return. It is due to this increased pressure and market volatility that banking risk needs such effective management to ensure the banks continued solvency. Risk can be defined as an â€Å"exposure to uncertainty of outcome† measured by the volatility (standard deviation) of net cash flow within the firm. Banks aim to add equity to the bank by maximising the risk adjusted return to shareholders highlighting the importance of fully considering the risk and return business equation. Exposure to risk does not always lead to a loss, pu re risk only has a downside from the expected outcome but speculative risk can produce either a better or worse result that expected. Credit risk is the risk that the counterparty will fail to repay the loan in part or full. This includes delayed payments or any default on the loan agreement. It is widely know that credit risk is one of the most damaging risks to banks, for this reason there is usually a separate credit department run around a credit culture of the managements views. The objective of the credit department will be to maximise shareholder value added through credit risk management. To manage credit risk banks do sometimes take a security over the loan such as property or shares which the bank can take possession of in the event of default on the loan agreement. If the market prices of the security become volatile the bank may ask for more security to offset the probability of marginal default increasing. Credit constraints are implemented to make sure there is a restriction on certain loan agreements to a specific category of borrower, well defined credit limits will reduce the risk of adverse selec tion. Pricing the loan is a technique which uses a risk adjusted premium to determine the rate of interest on a loan, with the riskier the loan the higher the premium, although a higher interest rate may increase probability of default so must be monitored regularly. The final credit risk management method is to reduce credit losses by building a portfolio with diversification between low and high risk lending. This essentially offsets high risk and return lending with low risk and return lending to minimise any losses incurred. A similar but more specific concept to credit risk is sovereign risk involving risk that a government will default on a loan agreement from a private sector bank. This case is unusual because if a government sates that the default is due to movement of resources to resolve domestic issues it can declare the loan agreement void due to immunity in the legal process, this will barrier debt recovery through the taking the possession of assets and often leave the bank with partial or full loss of the loan. Debt repudiation is an extreme case where the government no longer recognises their debt or obligations to creditors. Due to problems and the high risk associated with government lending a foreign currency sovereign credit rating was defined in an attempt to enable informed investor lending decisions. An interest rate is a premium paid in order to consume resources in the present rather than at a later date. Interest rate risk is loss or gain in the value of a position due to changes in the interest rate, it is a speculative risk because the changes in interest rates can lead to both a positive and negative result. There are two types of interest rate which are fixed rate and rate sensitive, the simpler form of risk lies with fixed rate assets and liabilities because a change in the interest rate above or below the fixed rate with lead to a loss or gain in capital. Simulation approaches are highly complex and involve an assessment of the potential changes of interest rates on earnings, future economic value and impact on cash flow. Static simulations assess only the cash flow of on and off balance sheet activity, whereas dynamic simulations build a model predicting the future changes of interest rates and expected changes in the banks activity. The best known interest rate risk m anagement method is gap analysis. This is a detailed analysis of the gap between interest rate sensitive assets and interest rate sensitive liabilities over a specific duration. A rate sensitive asset or liability is defined by an asset or liability in which the cash flow changes in the same direction as interest rates. The changes in interest rates have a detrimental effect if there is a mismatch between rate sensitive assets and liabilities, this is because if the level of rate sensitive liabilities is higher than rate sensitive assets, an increase in interest rates will lead to less profits. High quality interest rate risk management can effectively increase or decrease the gap in order to maximise revenue. Operational risk is defined at the risk of loss from a breakdown in internal processes and/or management failure. This can occur through different events such as a law suit, systems failure, or damage to assets and its effects can lead to an increase in unsystematic market risk and liquidity risk. Although there has been significant importance placed upon operational risk there is at present still no clear method of measuring its risk and effects on a general basis. The Basle II provided three suggested methods of calculating the operating risk of a firm. The basic approach allocates capital using gross income as an indicator for the banks exposure to operational risk. The Standardised approach divides the bank into business units and lines and uses individual indicators to calculate a department specific level of exposure to operational risk. The final method of calculating operational risk is the internal measurement approach which allows each bank to use individual internal loss data to determine the capital allocation. Market risk is the risk of movement in the price function of financial instruments, resulting in the loss/gain in value. It is a speculative risk, measured by the probability in potential loss/gain in value of a portfolio. The risk occurs in two separate forms; Systematic market risk is caused by the price movement of all financial instruments due to changes in the macroeconomic climate. Unsystematic risk occurs when an instrument moves out of line with the rest of the market due to internal factors with the issuer. Systematic market risk can be prepared for in event of downturn in the economic climate by capital allocation to the specific risk calculated by the risk adjusted rate on capital. Value at risk is a measure of potential losses incurred to a portfolio due to adverse market price movements often used in risk management. Unsystematic risk can be offset by diversifications of investments into several different countries and/or industries affectively spreading the risk in att empt to avoid huge losses in specific sector investment. The diversification of investment into foreign countries may increase the potential probability of currency risk. Exchange rate flexibility exposes all firms with a short or long term position in any given currency to currency risk. Globalised markets have lead to increases in multinational firms and foreign investment, increasing the level of foreign exchange and political risks. Any exchange of money in a currency other than the firms home currency would be expressed as a purchase of foreign currency. Foreign exchange transactions can involve many forms of on and off balance sheet financial instruments. Duration analysis can be used to compare the value of foreign bond to the foreign or domestic currency interest rates. Measures of net risk exposure for each currency can be assessed using gap analysis and will be equal to the difference between assets and liabilities in each currency. Political risk arises through the risk of political interference in the operations of a private sector bank, the exposure of which can range between interest rate and exchange regulations to the nationalisation of the financial service industry. The main factors which have been stated as to affect political risk is internal or external armed conflict, democratic government, and government stability. The level of Liquidity risk can affected by many of the other risks and is defined as the risk that the bank will have insufficient liquid assets on its balance sheet and is therefore unable to fulfil financial commitments without the sale of assets; this is generated from a mismatch in size and maturity of assets and liabilities on the balance sheet or due to loan defaults with a surge of depositor demands. Day to day liquidity risk (funding risk) relates to the daily withdrawals and is predictable due to low depositor withdrawals, if there was a surge of withdrawals then many banks would rely in loans from the interbank market to cover the short term illiquidity. A more unpredictable risk also arising from increased depositor withdrawals is a liquidity crisis. The increase in withdrawals often stems from lack of confidence in the bank, this situation will force the bank to borrow at an elevated interest rate or rely on central bank intervention and deposit insurance to avoid a run . In this situation the central bank can provide provisions in the form of high interest loans or advances, however this is costly and can further damage the banks reputation. Ideally the bank could use a method of maturity matching to guarantee liquidity and eliminate the funding risks. This is the coordination of cash flow by matching the maturity of an asset with the maturity of a liability. This is unlikely to be a widely used approach as asset transformation is a key source of banking profit. Usually the bank will hold a certain level of liquid assets to reassure creditors and signal to the market that the bank is doing well, an increase holding of liquid assets will avoid the liquidity problem but due to a trade off between liquidity and profitability lower return on investments. The most widely used technique of managing banks liquidity is Gap analysis, the liquidity gap is defined by the difference between net liquid assets and unpredictable liabilities. This gives the abili ty to monitor available capital over time. Financial services differ from other firms because of the high level of financial risks that they assume through the payment and intermediary functions. It is therefore critical to manage the risks faced to ensure solvency and to maximise the firms value added. In some cases the management of an individual risk can have a positive or negative effect on another risk which shows that they are not mutually exclusive. Many of the main financial crises have risen from a combination of risks surrounding losses due to poor credit risk management, it is important to highlight diversification of a portfolio and asset liability management as influencing factors in effective risk management as they can reduce the probability of several risks. In the future it is important to continue developing new formal and quantitative risk management processes to ensure continues solvency within the financial services industry.

Chemical Control Agents Used Against the Gypsy Moth Essay -- Gypsy Mot

Chemical Control Agents Used Against the Gypsy Moth The gypsy moth (Lymantria dispar) is a highly disruptive species that can, and has played a distinctive role in the lives of many organisms. Included in these organisms are various deciduous trees and shrubs, wildlife species that share the same environment, and even humans. The gypsy moth destroys the beauty of woodlands via defoliation, alters ecosystems and wildlife habitats, and disrupts our own lives. It should therefore come as no surprise that the U.S. Department of Agriculture and many other agencies have taken huge steps to help diminish populations of this small, yet persistent species. In an effort to control these overwhelming populations, five chemical control agents have been used to suppress and/or eradicate the gypsy moth. Following, is a discussion of each chemical and their potentially hazardous effects on humans. The first chemical control agent is Bacillus thuringiensis var. kurstaki (B.t.k.); a bacteria isolated from diseased silk worms and flour moths. The potency of B.t.k. varies among insects and readily destroys lepidopteran larvae within approximately one hour of ingestion. More than 1 million pounds of B.t.k. is applied annually in the U.S., primarily via aerial spraying, but also by ground spraying. It does not persist long in the environment (losing its activity by 50% within 1-3 days), has not been seen to replicate in gypsy moth predators, and does not accumulate in the soil. There seems to be a low level of concern regarding human B.t.k. exposure, although B.t.k. formulations have caused eye, skin, and respiratory tract irritations, especially in ground workers. Some claims reveal that a majority of these workers were not equipped with ... ... 8) U.S. Department of Agriculture, Forest Service, Northeastern Area State and Private Forestry, Summary: Final Environmental Impact Statement, Radnor, PA, 1995. 9) U.S. Department of Agriculture, Forest Service and Animal and Plant Health Inspection Service, Gypsy Moth Suppression and Eradication Projects, 1985. 10) U.S. Department of Agriculture, Forest Service and Animal and Plant Health Inspection Service, Gypsy Moth Managment in the U.S.: a cooperative approach. Environmental Impact Statement; Appendix F Human Health Risk Assessment, 1995. 11) Wargo, Phillip M., Defoliation by the Gypsy Moth: How it Hurts Your Tree, U.S. Department of Agriculture, No. 223, 1974. 12) White, William B., Hubbard, Schneeberger, and Raimo, Technological Developments in Aerial Spraying, U.S. Department of Agriculture, No. 535, 1974.

Common risks, threats, and vulnerabilities Essay

1. What are some common risks, threats, and vulnerabilities commonly found in the LAN-to-WAN Domain that must be mitigated through a layered security strategy? A layered security strategy will encompass Rouge protocols such as Bit mining and P2P, Unauthorized network scanning and probing, and unauthorized access to the network. 2. What is an Access Control List (ACL) and how is it useful in a layered security strategy? An ACL is a Control list which will allow or deny traffic or devices based on specifications defined in the ACL. This ACL generally is applied and configured on Firewalls. It is useful in a layered security approach because from an External standpoint it become the first line of defense when hosts attempt to connect to the network. 3. What is a Bastion Host? Provide an example of when a Bastion Host should be used and how. A â€Å"Bastion Host† is a host that is minimally configured software firewall containing only necessary software/services. These are also referred to as bare metal or â€Å"lite† and is managed to be overly secure through a minimalist approach. All traffic coming is directed to the Bastion or â€Å"screened host†. Outbound traffic is not sent through it. The most common threat to the Bastion Host is to the operating system that is not hardened with additional security applications. 4. Provide at least two examples of how the enclave requirement to place a firewall at the perimeter can be accomplished. a. Placing a firewall between two routers and another firewall before a DMZ would be the best requirement choice to use 5. What is the difference between a traditional IP Stateful Firewall and a Deep Packet Inspection Firewall? a. IP Stateful firewall inspection takes place in layer 4, when traffic attempts to traverse the firewall a requested a source port and a destination port pair become part of the session allowing the source to receive information. Stateful inspection firewalls solve the vulnerability of permitting all the high numbered ports by creating a table containing the outbound connections and their associated high numbered port(s). b. Firewalls utilizing deep packet inspection provides enhancements to Stateful firewalls’ Stateful firewall is still susceptible to attack even if the firewall is deployed and working as it should be. By adding ap plication-oriented logic into the hardware, essentially combining IDS into the firewall traffic. Deep Packet Inspection uses an Attack Object Database to store protocol anomalies and attack  traffic by grouping them by protocol and security level. 6. How would you monitor for unauthorized management access attempts to sensitive systems? Acl’s and audit logs can be leveraged to confirm which station is attempting to make the unauthorized connection. 7. Describe Group ID (Vulid): V-3057 in the Network IDS/IPS Implementation Guide provided by DISA? A management server is a centralized device that receives information from the sensors or agents 8. What is the significance of VLAN 1 traffic within a Cisco Catalyst LAN Switch? Describe the vulnerabilities associated if it traverses across unnecessary trunk. VLAN1 traffic will contain the STP or spanning tree traffic, CDP traffic, and Dynamic trunking traffic to name a few. If unnecessary traffic traverses the trunk it could cause the switch instability causing it to go down or become inoperable. 9. At what logging level should the syslog service be configured on a Cisco Router, Switch, or Firewall device? Syslogs traps should be configured at levels 0-6. Logging Level 2 10. Describe how you would implement a layered, security strategy within the LAN-to-WAN Domain to support authorized remote user access while denying access to unauthorized users at the Internet ingress/egress point. To implement a layered security strategy for remote user access, we would start with an application based login, such as a VPN -SSL authentication then pair it with LDAP on a radius or Tacacs+ service. LDAP is bound to Active directory which will leverage Role based access controls to check group permissions. 11. As defined in the Network Infrastructure Technology Overview, Version 8, Release 3, describe the 3 layers that can be found in the DISA Enclave Perimeter layered security solution for Internet ingress/egress connections (i.e., DMZ or Component Flow). 3 types of layers found in the Enclave Perimeter Component Flow include the Network layer security, Application layer security and security of the actual applications themselves. 12. Which device in the Enclave Protection Mechanism Component Flow helps mitigate risk from users violating acceptable use and unwanted websites and URL links? The Web Content Filter 13. True or False. The Enclave Protection Mechanism includes both an internal IDS and external IDS when connecting a closed network infrastructure to the public Internet. True, it is required to have external IDS as well as internal IDS. Requirements include having a firewall and IDS in between the internet facing router and the internal, â€Å"premise†, and router. 14. True or False. Securing the enclave only requires perimeter security and firewalls. False, securing the enclave includes a layered firewall approach both on the inside and outside of the network. Sensitive data can be secured from other segments of the internal network (internal) as well as Internet links (external). 1 5. What is the primary objective of this STIG as is relates to network infrastructures for DoD networks? STIG, or Security Technical Implementation Guide, is an intended guide to decrease vulnerabilities and potential of losing sensitive data. The guide focuses on network security, giving security considerations for the implemented network. The STIG also covers the level of risks and the associated acceptable levels to said risks.

Sight and Blindness in Oedipus the King Essay - 1048 Words

The Irony of Sight and Knowledge in Oedipus the King People equate ‘seeing’ to gaining knowledge. Expressions such as â€Å"I see† and â€Å"seeing truth† are used to express understanding of something, but is seeing really the same as knowing? In Oedipus the King, Oedipus’s inability to grasp the truth is despite the fact that he is physically able to see contrasts Teiresias’s knowledge of the truth even though he is blind. The irony of the blind man being knowledgeable, and the seer becoming blind to the truth suggests that the idea that knowledge is not related to physical sight. In the beginning of the play, Oedipus is able to see but does not know the truth about who killed Laius. At the conclusion of the play, Oedipus is†¦show more content†¦You can’t hurt me or anyone else who sees the light-you can never touch me.† (10) Here Oedipus is suggesting that Teiresias is inferior to anyone who can see, including himself, and is not a threat to them. Oedipus is wrong because the fact that Oedipus has the advantage of sight over Teiresias is not comparable to the knowledge that Teiresias has. This is yet another example of dramatic irony. It may seem that Oedipus has the advantage over Teiresias because Teiresias is blind, but the knowledge of who Oedipus really is is far more important. A lot of the irony of Oedipus’ blindness also occurs at the end of the play, when Oedipus makes himself physically blind. â€Å"†¦, he digs them down the sockets of his eyes, crying, You, youll see no more the pain I suffered, all the pain I caused! Too long you looked on the ones you never should have seen, blind to the ones you longed to see, to know! Blind from this hour on! Blind in the darkness-blind! (46) At this point, Oedipus is confirming a line said early by Teiresius that â€Å"to see the truth when the truth is only pain to him who sees!† (6). Oedipus is now in exactly the same position that Teiresius was when he mocked him, physically blind but seeing the truth. Teiresius, the blind prophet, happens to be one of the very few people to know who Oedipus really is and what he has done, however he wishes he did notShow MoreRelatedSight And Blindness In Oedipus The King789 Words   |  4 PagesCaleb Cho Ms. Kim English 373H 5-October- 2017 Tension Between â€Å"Sight† and â€Å"Blindness† Essay - Rough Draft Deep in the forest lived a blind man named Carl. Once a week Carl would travel to the nearest city to buy supplies and food. One day, a young boy decided to play a trick on Carl, the boy would catch a bug, and then ask if the bug was alive or dead. If Carl said â€Å"alive† the boy would crush the bug and show Carl the bug was dead. 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EvenRead MoreThe True Vision of Blindness in Oedipus Rex by Sophocles Essay959 Words   |  4 Pagesthey are blind to it. In Oedipus Rex by Sophocles it is easy to see how blindness affects the transition of the story. It is said that blind people see â€Å"in a different manner† because they sense the world in a totally diferent way, such as Teiresias in the play. Oedipus Rex is a tragedy due to the content the Sophocles, the playwright, decided to include, first, murdering his father, king Laius, t hen marrying his mother, Jocasta, and ending by blinding himself. Oedipus has been blinded to the truth