Risk Management | Financial Institute of Management

Financial
Institute
Management

FINANCE 1
Contents
Introduction......................................................................................................................................2
Capital Risk.....................................................................................................................................3
Capital Risk Management Process..................................................................................................3
Capital Adequacy Ratios.................................................................................................................4
Risk Weighted Assets......................................................................................................................5
Liquidity Risk..................................................................................................................................7
Liquidity Strategies and Risk Management.....................................................................................8
Liquidity Coverage Ratio................................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

FINANCE 2
Introduction
Risk defines the loss of some value or the threat of any factor that affects the value. The
companies take the financial risk in order to lose or gained the value through action or inaction.
Financial risk defines the various types of risk those are associated with the financing such as
capital risk and liquidity risk. Investors have to analyses the financial statement to evaluate the
financial position of the organization before investing in it. It is required for the company to
implement the rules and regulations while preparing the financial statements to manage the risk
(IG, 2019). APRA stands for the Australian Prudential Regulation Authority is a statutory
authority of the Australian government. Prudential regulation is concerned with keeping the
safety and soundness of financial organizations so that the community has the confidence to meet
their financial commitments under all reasonable circumstances (APRA, 2019). The main
purpose of APRA is to protect the interests of policyholders, depositors, and superannuation fund
members. APRA helps the banks to manage the risk by implementing the policies and
regulation. In this paper, the discussion is made on the topic of “manage risk”. Commonwealth
Bank and State Bank of India are the banks that have been taken into consideration to compare
the risk.
Commonwealth Bank is a multinational bank of Australia that operates the business in
different locations such as New Zealand, Asia, the United States, and the United Kingdom. It
provides financial services to consumers such as insurance, superannuation, broking services,
investment, funds management, retail, business, and institutional banking.

FINANCE 3
State Bank of India is a multinational bank in India. It is a public sector banking and
financial services statutory body that provides financial services to the consumer. It is a
government corporation which headquarters is in Mumbai, Maharashtra.
Capital Risk
Capital Risk is the potential loss of part or all of an investment that the investors face
when they invest in stocks, non-government bonds, commodities, real estate, and other
alternative assets. APRA introduced some regulation including ASP110 which is based on Basel
III which ensures that bank has sufficient amount of capital (owner’s equity) to protect from
unanticipated losses that a bank can face (APRA, 2019).
Capital Risk Management Process
All the banks of Australia are required to make the capital management plan to order to
minimize the risk. The strength of all ADIs is having a sufficient amount of capital adequacy to
reduce risk. APRA states the importance of strong capital management by implementing rules
and regulations.
Commonwealth Bank of Australia has a strong risk management policy which is known
with the name of “RM policy”. RM policy of the company supports the requirement of section
16 which states the Public Governance Performance and Accountability Act 2013. It also
maintains accountable authorities of entities to organize and maintain the system and appropriate
internal controls for the management of risk (Australian Goverenment, 2018).
State Bank of India has less risk as it is a government bank due to which it has to
implement all the policies to maintaining the capital in the organization. It implements the risk