Bank Risks, Regulatory Interventions and Deconstructing the Focus on Credit Risk

Abstract

The risks that banks face have been exacerbated by the globalization and liberalization of the financial markets. The liberalization of the financial markets has exposed banks to a plethora of risks such as credit risk, liquidity risk, operational risk, counterparty risk, regulatory risk, systematic and reputational risks. A recurring discourse in the risk management literature is the perceived concentration of regulatory authorities on credit risk. This topic is reconsidered in this paper to critically evaluate the different risk types and to interrogate the assertion that regulatory authorities have focused more on credit risks of banks while shying away from other possible risks that banks face. Reviewing contemporary literature and regulatory interventions, we conclude that contrary to the claims that regulatory interventions have focused on credit risk of banks, attempts have been made to address in broad terms the gamut of risks that banks face.

Risk Management Practice and Organizational Performance: The Mediating Role of Business Model Innovation

“…For example, business model innovation may involve new products, services, or business processes, which can create new risks such as reputational risks, legal risks, or risks associated with the implementation of new technologies. Additionally, some business models may be riskier than others, and organizations need to be aware of these risks and take steps to mitigate them (Okafor & Fadul, 2019). On the other hand, effective risk management can also contribute to non-financial performance by promoting transparency, trust, and integrity, which are crucial for maintaining good relationships with customers, suppliers, employees, regulators, and other stakeholders.…”

“…The financial institution, which is the content of the paper, comprises different financial risks (Cheng et al, 2020;Fadun & Oye, 2020). In the study by Okafor and Fadul (2019), a high notch of strength involved in disclosing risk contains both mandatory and voluntary disclosure, which has recently been moved to strategic risk management as a result of separating operational risk from strategic risk in the financial institution. A risk management tool is used to evaluate an entity's competitive advantage where the structure is based on a continuing mediating role associated with performance (Yang et al, 2018).…”

Cushion hypothesis and credit risk: Islamic versus conventional banks from the MENA region

“…The banking sector is subject to stringent regulations. According to Okafor and Fadul [ 14 ], the implementation of prudential regulation plays a crucial role in ensuring stability within the financial sector by overseeing banks and preventing them from engaging in excessive risk-taking. According to Gentzoglanis [ 74 ], the implementation of regulations serves as a means for banks to operate securely and mitigate the negative effects of excessive competition within the industry.…”

“…Banks might be less reluctant to proactively identify and manage risk in the presence of a strong derivative market [ 13 ]. Also, poor regulatory quality encourages excessive risk-taking [ 14 ].…”

An Empirical Analysis of the Dynamics Influencing Bank Capital Structure in Africa

“…Nonetheless, banks face the risk of loan default from their customers and this kind of hazard is identified as credit risk. According to Okafor and Fadul (2019) and Badawi (2017), other risks that banks face which arise from their trading activities include market, counterparty, credit risk, liquidity, and operational risks. Affinito and Tagliaferri (2010) argue that, despite all the sources of finance available to them, banks largely rely on debt capital to meet their financial and operational needs.…”