Risk Management

0Running Head: RISK MANAGEMENT
RISK MANAGEMENT
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RISK MANAGEMENT
Table of Contents
Central banks...................................................................................................................................2
Commercial banks...........................................................................................................................3
Islamic banks...................................................................................................................................4
References........................................................................................................................................6

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RISK MANAGEMENT
Central banks
Central banks are financial organizations which manage, control and regulate other banks in that
particular nation. Central banks play a crucial part in managing, handling, controlling and
optimizing financial risks. Unlike Islamic banks and commercial banks, it has the power to
enforce financial policies and fix standard bank rate. The growth of financial balance sheets of
central banks depends on managing financial risks. However, commercial banks and Islamic
banks do not have the right to control financial policies and enforce economic rules and
regulations to mitigate risk management (Ball et al., 2016). Mitigation of risk factors helps to
control the global economic environment. Steps taken by central banks to mitigate financial risk
factors and develop global economic environment are as follows:
 As an investor, central banks tend to be conservative. It defines when other banks face
trade-off risks central bank favors the low credit risk and a modest return. This policy
helps to control short term financial risks of the banks.
 As policymakers, central banks measure market situation and market prices and analyses
possible riskfactorswhich other banks may face. For example- price hike, reduction
intransaction or reduction in loan disbursement, hence, efficient monetary policies are
employed to nullify all these possible risks. The application of monetary policy is an
essential element which differentiates central banks from other banks.
 Only central banks have the authority to bring accountability and transparency in the
financial exchange. Central banks are accountable for maintaining clarity in financial
transactionaroundthe world. It records the entire transaction details which are helpful to
control inflation and deflation (Bech and Malkhozov, 2016).