00:01
Explain five of the risks faced by financial institutions like banks.
00:04
The first one is credit risk.
00:12
So this is the biggest risk and it happens when borrowers or counterparties fail to meet the obligations outlined in the contracts made with the bank.
00:24
So for example, it happens when borrowers default on a principal or interest payment of a loan.
00:31
They can occur on mortgages, credit cards, and fixed income securities.
00:36
The next one is operational risk.
00:54
This is the risk of loss due to errors, interruptions, or damages that is caused by human error systems or processes.
01:07
This risk is low for simple operations like retail banking.
01:12
It's higher for operations such as sales and trading.
01:18
So human error would include internal fraud or mistakes that are made during transactions.
01:25
So for example, if a teller accidentally gives extra money to a customer, this is an operational risk.
01:34
And fraud such as a breach in the bank's cybersecurity is definitely going to be another risk that falls under this category.
01:49
Then we have market risk...