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icular type.
 
The limits described above lead to passive risk avoidance and/or diversification, because managers generally operate within position limits and prescribed rules. Beyond this, guidelines offer firm level advice as to the appropriate level of active management, given the state of the market and the willingness of senior management to absorb the risks implied by the aggregate portfolio. Such guidelines lead to firm level hedging and asset-liability matching.
 
Incentive Schemes
 
These are schemes wherein the management enters into incentive contracts with the Managers and make risk based compensations. However, such incentive contracts require accurate position valuation and proper internal control systems. These tools include position posting, risk analysis, the allocation of costs etc are complex in nature. Well designed systems align the goals of managers with other stakeholders in a most desirable way.
 
Conclusion
 
Apart from the basic risks involved, commercial banks have many other issues like frauds within the employees etc. The industry is emerging with a higher level of risk management techniques compared to the ones used in the past. Yet, there is significant room for improvement. The risk management techniques reviewed here are not the average, but the techniques used by firms at certain niche of the market. The risk management approaches at smaller institutions are less precise and analytic. However, the techniques used by majority of firms that set the industry standard could do some improvement.
 
Each bank must apply a consistent evaluation and rating scheme to all its investment opportunities in order for credit decisions to be made in a consistent manner and for the resultant aggregate reporting of credit risk exposure to be meaningful. To facilitate this, a substantial degree of standardization of process and documentation is required. This has lead to standardized ratings across borrowers and a credit portfolio report that presents meaningful information on the overall quality of the credit portfolio.
 
All credits with the bank should be monitored at regular intervals to ensure the accuracy of the rating associated with the lending facility. Any kind of material change with the borrower or the facility itself, such as a change in the value of collateral or increase in stock prices will change the whole equation and hence a new valuation would be required. Thus following these steps would ensure the quality of credit portfolio to be consistent.
 
Bibliography & References
 
Jorion, P., Value at Risk: The New Benchmark for Control Mar ket Risk, Irwin Professional Publications, Illinois, 1997.
 
Phelan, M. “Probability and Statistics Applied to the Practice of Financial Risk Management: The Case of JP
 
Asymmetric Information in Financial Markets: Introduction and Applications. Ricardo Bebczuk (Ed.); Cambridge University Press, Cambridge, 2003
 
Morgan’s RiskMetrics ,” Journal of Financial Services Research , June 1997. TM
 
Saunders, A. Financial Institutions Management: A Modern Perspective , Irwin Publishers, Illinois, 1996.
 
Santomero, A. “Financial Risk Management: The W本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。