Risk financing determines a community bank’s ability to pay for loss events in the most effective and cost efficient manner. Through an enterprise-wide risk management (ERM), the chief executive officer (CEO) operates in collaboration with risk managers or senior executives from other departments to manage all risks. This provides a holistic or team approach. For a community bank, a description of the firm, the top five financial risks, and treatment of the risks will be discussed.
Description of firm The community bank services the local town, providing traditional banking services to families, small businesses, and family farms. The bank is small in size, 30 employees with one building located in downtown. Key functions of the community …show more content…
Risk financing allows for the treatment of risks through risk transfer or risk retention. Risk transfer allocates the financial responsibility for losses to another party, whereas, risk retention maintains the accountability within the bank. Considering the number of employees, creating awareness regarding the types of financial risks among all personnel is essential, as each has some role for managing risks. Five financial risks, credit, interest rate, liquidity, cyber security, and regulatory risks, are described with a method for …show more content…
The community bank is trusted with protecting sensitive client information. Direct financial losses incurred by the bank include: investigation and customer costs; lost revenue due to damaged reputation; regulatory fines; civil claims and legal fees (Liu, 2014a). Partial retention is the risk financing treatment for cyber security risk within the bank. The bank will assume a portion of the costs of losses incurred, while the outstanding portion will be transferred (Elliott, 2012). Within the bank, communication and training of all employees and management is vital. Properly integrated policies and procedures with technology to produce proper controls should be established and consider all stakeholders including customers, external vendors, third parties and bank personnel (Liu, 2014b). Effective detection and prevention of cyber risks will minimize the losses to the community
Description of firm The community bank services the local town, providing traditional banking services to families, small businesses, and family farms. The bank is small in size, 30 employees with one building located in downtown. Key functions of the community …show more content…
Risk financing allows for the treatment of risks through risk transfer or risk retention. Risk transfer allocates the financial responsibility for losses to another party, whereas, risk retention maintains the accountability within the bank. Considering the number of employees, creating awareness regarding the types of financial risks among all personnel is essential, as each has some role for managing risks. Five financial risks, credit, interest rate, liquidity, cyber security, and regulatory risks, are described with a method for …show more content…
The community bank is trusted with protecting sensitive client information. Direct financial losses incurred by the bank include: investigation and customer costs; lost revenue due to damaged reputation; regulatory fines; civil claims and legal fees (Liu, 2014a). Partial retention is the risk financing treatment for cyber security risk within the bank. The bank will assume a portion of the costs of losses incurred, while the outstanding portion will be transferred (Elliott, 2012). Within the bank, communication and training of all employees and management is vital. Properly integrated policies and procedures with technology to produce proper controls should be established and consider all stakeholders including customers, external vendors, third parties and bank personnel (Liu, 2014b). Effective detection and prevention of cyber risks will minimize the losses to the community