Banks are the cornerstone to everyeconomy; banks stimulate the allocation of money and allow of any idle sums tobe put to a profitable use. As past empirical studies showed, financial risks havea huge impact on the profitability and overall performance of commercial banks.
Banks who fail to manage these risks and reduce them as much as possible canface large losses. In the modern day, risk management is one of the mostimportant duties of a bank manager, given the magnitude of the credit crisis of’07, and the increasing regulatory restrictions placed upon banks. This research was focused upon examiningsome of the risks that banks face in order to find a clear relationship. Usingthe results from this research, banks can gain a more profound understanding ofthe true nature of the risks that a bank faces; before banks can begin managingtheir risks they need to understand them more thoroughly. The results of thispaper support the hypothesis that a bank’s performance in negatively related tocredit, liquidity, and operational risk. For a bank to maintain or even elevateits performance, it must try to reduce these risks as much as possible.Firms should identify each riskindividually to develop strategies to reduce their negative impacts. Formanaging credit risk, perhaps a more thorough screening process is needed toevaluate future borrowers.
Reducing liquidity risk can be achieved by maintaininga higher reserve balance. Operational risk can be minimized by employingsuperior technologies and systems. These are just a few of the ways a bankmanager can reduce the overall risk of the institution, and maximizeprofitability. References Adeusi,S.
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