5 Steps to Bank Risk Management

Like any other institution, banks, be it columbia bank sayreville or any other bank, face multiple risks in their daily activities. Banks can combat risks with a few simple but crucial steps. Here are the 5 steps to bank risk management, a full-proof plan that every bank needs to adopt!

Identification of Threats

The first and foremost step is to identify potential threats and risks. These may vary from systematic to liquidity or business to operational risks. Bank managers can look for solutions only after the type of risk has been confirmed.

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Assessment of the Vulnerabilities

After identifying the risks, banks must assess their complications and impacts. It includes analyzing the departments being affected. At this step, managers can create a risk framework that can enhance assessment and also benefit in the future.

Evaluation of the Risks

Certain risks operate at low levels, while others may make the bank vulnerable to huge losses. The third step involves ranking the risks based on their scope of impact. It also helps the banks to decide the level of attention required.

Finding Out Ways for Combat

The fourth step involves one or more of the following:

  • Avoidance: stepping back or withdrawing from that particular activity causing the risk.
  • Reduction: taking actions to mitigate the risks and reducing their impact.
  • Sharing: distribution of risks.
  • Retention: accepting the risks (not transferring or avoiding)

Implementing Measures

The last and the fifth step is implementing the decided measures to combat risk. It also includes reviewing and correcting existing methods to prevent such occurrences in the future.

Despite extreme preventive measures, risks are unavoidable even by banks. For flawless working, banks need to regularly monitor the various risks. One such effective way is through a digital risk management plan. It will keep the bank officials plugged-in about the risks as well as measures to be taken.

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