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Module7: Enterprise Risk Management

  Supervisory Review and Evaluation Process (SREP) and Internal Capital Adequacy Assessment Process (ICAAP) Supervisory Review and Evaluation Process (SREP) As per Basel guidelines, banks are required to maintain Capital to risk weighted asset ratio (CRAR) on an ongoing basis (other than Capital Conservation Buffer and Countercyclical Capital Buffer etc.) for Pillar-I Risks i.e. Credit Risk, Market Risk and Operational Risk. But banks also face many other types of risks such as Liquidity Risk, Country Risk, Credit Concentration Risk, Model Risk, Strategic Risk, Reputation Risk etc for which no capital is prescribed but these risks are also equally important and required to be managed by the banks efficiently. The objective of the SREP is to ensure that the bank has adequate capital to support all the risks in their business as also to encourage them to develop and utilise better risk management techniques for monitoring and managing their risks.   SREP and ICAAP address the fo...
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Module6: Operational Risk Management

 The internal processes, people, systems and external events as provided in how we defined Operational risk in the previous module, can be considered as the drivers of Operational Risk. However, Basel Committee on Banking Supervision has classified Operational Risk into Seven Loss Event Categories: Category 1 We call it Internal Fraud It involves at least one bank employee. It could be taking bribe or kickbacks, embezzlement, insider trading, theft, forgery, money laundering, wrong data entry for personal gain etc. Category 2 is called External Fraud acts which are committed by third parties Hacking, Phishing, Theft, Forgery, check kiting, Extortion, embezzlement etc. fall into this category Employment practice and workplace safety that is Category 3 Acts resulting in claims, fines or penalties related to discrimination, harassment, violation of employee health and safety rules. Losses due to organized labour action etc. also fall under this category Category 4 Clients, products, a...
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Module 5: Market Risk Assessment

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 Market Risk Management 1. Introduction 2. Risk Drivers 3. Assesment and mitigation 4. Capital Charge Trading Book- The trading book represents the banks portfolio of financial instruments that are intentionally held for short-term resale and typically marked to market. What does marked to market mean? This means that the bank has to intentionally account for the price that the instrument is curretly trading in the market for valuation of the instrument.  Banking Book consists of other assets mainly loans that are held to maturity and typically valued on a historical cost basis.  Sometimes the regulator in a country may waive the need for marking to market for some financial instruments which are perceived to be less risks eg government bonds, provided they are held to maturity. These instruments are then part of banking book. These instruments are held to maturity to meet some statutory requirements such as the liquidity coverage ratio. Banks investments are divided into...
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