Measurement Of Bank Risk And Income And Optimization Of Their Relationship
Measurement Of Bank Risk And Income And Optimization Of Their Relationship

Summary/Abstract: The risk is typical of any business, especially related to the activities carried out within the financial sector of an economy. In markets where participating banks are exposed to competition are forced to deal with different types of financial and non-financial risks. There are two major categories of risk in banks: credit risk and market risk. When it comes to risk-taking by banks, credit risk is especially pointed out, since this type of risk arises from the act of approving loans. Therefore, banks have an imperative to manage risks, to form an optimal portfolio for them at that moment, i.e. the appropriate relationship between risk and return. Greater risk is associated with higher profits, so the rational behavior of banks is aimed at establishing balance between risks and returns that are expected. The paper further discusses several analytical tools for risk measurement, which helps banks to measure their solvency, and evaluate their performance. In addition, the paper referred to the relevant points of Basel arrangements relating to capital standards for banks and the role of capital adequacy of risk management in banking sector.

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