Risk Appetite Framework Flashcards
What is speculative risk?
A category of risk that, when undertaken, results in an uncertain degree of gain or loss. In particular, speculative risk is the possibility that an investment will not appreciate in value. Speculative risks are made as conscious choices and are not just a result of uncontrollable circumstances.
What is pure risk?
Risk that entails the possibility of only a loss and no potential for gains.
What is the risk profile?
(actual risk): expresses the risk actually measured at a given point in time
What is the risk appetite ?
(target): this is the level of risk (overall and by type) that the bank intends to take on in pursuit of its strategic objectives;
What is risk tolerance?
Risk tolerance indicates the maximum deviation from the risk appetite allowed. The tolerance threshold is set so as to ensure in any case that the bank has sufficient margins to operate, even under stress conditions, within the maximum risk that can be assumed.
What is risk capacity?
(Maximum risk that can be assumed): represents the maximum level of risk that a bank is technically able to assume without violating requirements or other constraints imposed by shareholders or the Supervisory Authority.
What are risk limits?
Risk limits is the articulation of risk objectives
into operational limits defined, in line with the
principle of proportionality, by type of risk, business
units and/or lines, product lines and types of
customers.
How do bank types rank by the risk they are willing to take on?
Most risk: Investment Banks
Medium risk: Private Banks
Lowest risk: Commercial & Retail Banks
