Banks have earned their returns …show more content…
41). The interest rate risk and the liquidity risk in financial institutions are associated with the risk management of banking which are caused by depositors withdrawing their investment just in case of interest rate variation and the involving of the interest rate being paid by the commercial bank to attract and keep funds in form of deposits. Risk management have always been a dramatic fundamental in the financial market. Each type of risk is being hassled when there is an issue of risk management in banking. However, these risks are in interaction with one another with an impact performed by the commercial bank. As for the global risk management in banking, it represents the bank protection against negative effect happening with the commercial bank that have been registered. It is a good idea for all banks to look more into a global risk management, because it takes on four important steps. Those four steps are the identification and assessment of risk, risk control, risk reduction, and risk that could be shifted. All these steps cover …show more content…
First, they have to measure. This bank has a lot of advantages than they had over the last years. The second step is make changes in the type of assets and liabilities they are accountable for. And the last step would identify the interest rate risk to ensure the banks are not taking control on other interest rates. However, all banks face interest rate risk, but as for commercial banks using interest rates, look at it as having a high blood pressure (Feldman & Schmidt, 2000). On the other hand, interest rate risk has not been in a position as a threat to the commercial banking system, but the trend of the system has been stable in the net interest margins and able to increase their growth within the market. Now, the net interest margins have shown a stable trend no matter what the violation in the interest rate was. They may not always reveal the long-term exposures of the bank losses if violation of rates increased or if the market rates remained at a high level. Therefore, commercial banks mainly focus on the future cash flows of their assets and liabilities, because they can serve as leading the quality of the net interest margins to identify risk exposures (Houpt & Wright, 1996, p.