Although this chapter is primarily concerned with credit risk, there are other types of risk that the financial industry faces. Some of these risk types are:
- Operational risk: Risk emanating due to failure in processes, systems, and errors caused by human intervention. For example, transactions being credited to incorrect accounts due to the absence of adequate checks, or a system upgrade to the core banking system failing, thereby preventing customers from accessing their accounts.
- Market risk: Risk arises due to dramatic and adverse movements in market prices. Both the on-and off-balance sheet positions are vulnerable to factors that affect the overall performance of financial markets in which the firm is involved. It is also at times referred to as systematic risk. For example, a market that the organization is exposed to is suddenly faced with currency controls...