This paper discusses the article "Risk Management in Financial Institutions" by George Oldfield and Anthony Santomero.
Written in 2002; 966 words; 1 sources; MLA; $ 34.95
Paper Summary:
The paper studies the article in order to address two issues associated with risk exposure for financial institutions. The writer asks the questions and then finds within the article that different styles of risk mitigation are applicable to all types of financial institutions, although the balance among these mitigation strategies will vary by institutional type and by institution within institutional types depending upon an institution's needs at any given time.
From the Paper:
"The first question facing a financial institution, thus, is whether to manage risk or avoid risk. Costs are involved for a financial institution regardless of the nature of the decision on this issue. Thus, the decision itself boils down to a question of which decision likely risks the greater costs for the institution. At this level, a financial institution may avoid risks through business practices that minimize risk exposure or the institution may transfer risks to other participants. In the first instance, the financial institution will forego some level of business activity to minimize risk exposure. The question revolves around the issue of whether potential loss of profits from business not conducted likely would exceed any losses associated with the higher level of risk exposure. In the second instance, the financial institution will need to compensate in some way other participants for assuming risk. The question in this instance revolves around the issue of whether the costs of compensating other participants likely would exceed any losses associated with retaining the risks by the financial institution."
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