Risk Is Present Everywhere Finance Essay - Free Essay Example

Sample details Pages: 19 Words: 5578 Downloads: 2 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? Risk is present everywhere. It is an important player in any financial system. As such, the banking institution should manage their risk efficiently in order to survive in this highly uncertain world. Don’t waste time! Our writers will create an original "Risk Is Present Everywhere Finance Essay" essay for you Create order . It can be said that Banks are in the business of managing risk, not avoiding risks or a banks success lies in its ability to assume and aggregate risk within tolerable and manageable limits. First author Prof RekhaArunkumar and second Author Dr. G. Kotreshwar. Only those banks that have an efficient risk management system will survive in the long run and the effective management of credit risk is a critical component. Credit risk is the oldest and biggest risk that bank, by virtue of its very nature of business, inherits. This has however, acquired a greater significance in the recent past for various reasons. Foremost among them is the wind of economic liberalization that is blowing across the globe. (Rekha A., 2004). In this literature review, the researcher explain the how credit risk arises and some ideal principle of credit risk management. The research covers theories and previous studies on the equivalent title. Definition of bank In order to have a better understanding of the different type of risk arises from the banking sector. Let define a bank itself. A bank is considered as a financial intermediary who make surplus unit meet deposit unit. More precisely, the bank accepts deposit from surplus unit and gives loan to deficit unit or through capital markets. As, bank are cornerstone of every countries economy, therefore, it is highly regulated. Banks main revenue comes from lending loan. They use an ideology call the fractional reserve banking, that is, they keep 10% of their deposit and lend 90% of it in order to make profits (Wikipedia). The banks have also a minimum capital requirement which has been initiated from 1988. These requirements are regulated by the Basel framework. This framework is regulated internationally. There are also other definitions of banks but generally it contained the same message. According to Crowther, A bank is a firm which collects money from those who have it spare. It lend s money to those who require it. According to Mr Parking, A bank is a firm that takes deposits from households and firms and makes loans to other households and firms. Core function of banks The main business of banks is to grant loan and accept deposit. Loan is a debt, which entails the redistribution of the financial assets between the lender and the borrower. Another core function of the banks is to accept deposit. The bank therefore, make the deficit unit (person needing the loans) meets the surplus units (person accepting the loans). According to Kelly Kendrick (the basics of Business bank loans), there are two basic types of loan mainly consumer loans and commercial loans. Commercial loans are mostly granted to businesses. These loans are granted to finance, financing equipment, financing an office building or construction loan. Consumers loans are made to individuals are used for personal reasons or financing home. The terms of the loan include the payment plan, payback period (or amortization period) and the interest rate. Granting loan is the main source of income for any income for any commercial banks. They give loan to their clients and in return charge an interest rate to the client. The most important income of banks is to accept deposits from its clients. The bank has to accept money from various types of income earners. The bank has to accept the society as a whole; therefore it has to response to all kind of deposits from low income earners to businessmen. For the fixed income earners, their main objective is to keep their money in a safe place and think about their future plans while for business, they deposit their saving mainly as a mode of payments. Relationship between Deposits and Credit risk Banks earn the core amount of their income from the spread between the interest rate they charge to borrowers and the interest rate they pay to depositors. The main reason for lenders and borrowers to enter into relationship is to be able to reduce, the amount of asymmetric information and agency costs. Agency cost refers to cost which are attributed to the transactions, where a banks acts in the form of agents and representatives of their clients and the latter should consent to the particular tasks. Agency costs also mean that bankers require the bank to back its lending with a minimum amount of its own capital ( Over Rein Hetland (May 25, 2011)) also and asymmetric information refers to a situation where the banks are unaware of some information that only the borrowers know. According to an analysis made by Wharton 1999 (Deposits and relationship lendings) , A durable lending relationship, in which the bank gains information about the borrowing firm, has been shown to be valuabl e both to small firms (Petersen and Rajan, 1994, and Berger and Udell, 1995) and to large firms (Lummer and McConnell, 1989, and Slovin, Sushka, and Polonchek, 1993). In particular, continuing relationships are associated with lower loan rates, less stringent collateral requirements, and a lower likelihood of credit rationing. From another regression works by, Over Rein Hetland(May 25, 2011), We see that the existence of a positive deposit account balance increases interest rate margins paid by the firm, but it also increases credit granted which would automatically increase the credit risk of the bank. From the same regression works, Over Rein Hetland also pointed out that, firm borrowers with deposit accounts are more likely to remain borrowers at a bank when the bank faces high loan losses, relative to other borrowers not holding deposits at that bank. In my future analysis, I would like to analyze if the banking sector in Mauritius has been able to cope with the credit ris k arises with the amount of deposit and agency cost. Relationship between Loans and Credit risk The main risk which arises form loan is credit risk. The researchers have characterized loans components and see if, there is any correlation with credit risk. The main components are: Collateral, maturity, size of the loan, type of lender and relationship between customer and bank. Collateral can be defined as the property or other assets that a borrower offers to a lender to secure a loan. Collateral has been classified as a complex debate from various authors. (Stiglilz and Weiss 1981), Bester (1985), Chan and Kanatas (1985) said that, lower risk borrowers are willing to pledge more and better collateral, given that their lower risk means they are less likely to lose it. It can be said it more simpler words that collateral may help to control the problem of moral hazard and asymmetric information. Freixas and Rochet (1997) concluded that high risk borrowers do not need to post collateral whereas low risk ones do, in exchange for lower interest rates. It can be assumed that th e collateral create a situation where both parties make the same effort in order to make the project works. However, the empirical evidence shows that the bankers normally associates collateral to with greater risk borrower. (Orgler 1970), (Hester 1979). There are also some arguments which compromised the relationship explained above, Saunders (1997) claims that the best lenders do not need to post collateral as their credit risk is small. (Manove and Padilla (1999, 2001)) said that, the probability that more collateral entails more non-performing loans or greater probability of default. In my future analysis I would like to analyze if, the Mauritian Banking sector has a positive or negative relationship between loans and collaterals. Maturity In our modern era, the longer maturity date, the more likely, the borrowers would have trouble to repay back the loan. Due, to the volatility of the economies we are currently living in. According to (Jackson and Perraudin (1999), the longer the maturity, ceteris paribus, the greater the risk of the borrowers encountering problems. Flannery (1986) had concluded also that, the maturity is an alternative mechanism for solving the problems of adverse selection and moral hazard in credit relationships. However, this assumption is highly criticized, because in other words, due to the facts that it considered that lower risk borrowers would therefore choose short term finance, the shorter the maturity, the lower the risk. It can be noted that this argument cannot be considered right. As such, the empirical evidence, shows that credit risk and maturity have a negatively relationship (Berger and Udell (1990)), and even no relationship (booth (1992)). In my analysis, I would like to test whether; the maturity has a positive impact on the credit risk. Size of the loan According to Gabriel Jimenez and Jesus Saurina (2002), size of loan is directly related to the size of the borrower, the age of the company and the le ngth of the bank-borrower relationship. They consider those attributes to be an indicator of credit risk. The smaller the loan, it is related to newly created companies which involve greater credit risk, therefore, greater rates of default. Large loan to large companies are considered to be less risky as the big companies has greater financial stability. It can also be noted that large loan are scrutinize in more detail which result in lower rate of default. The empirical evidence from (Berger and Udell (1990) and Booth (1992) agreed with this statement. (Berger and Udell (1995), Leeth and Scott (1989) and Harhoff and Korting (1997) have noted that small companies are more opaque in information terms than large ones, as such they provide more collateral to secure loans. As such, it creates a positive empirical relationship between collateral and credit risk and a negative relationship between size and default. (Gabriel Jimenez and Jesus Saurina (2002). Relationship between type o f lender and relationship between customer and bank on credit risk According to Gabriel Jimenez and Jesus Saurina (2002), a close relationship between the bank and the borrower enables bank to obtain extremely valuable information about the latters economic and financial institution. According to (Sharpe (1990) and Rajan (1992)), this close relationship may produce informational rents for the bank which would enable them to exercise a certain degree of market power in the future. Therefore, banks may be prepared to finance riskier borrowers if they can subsequently offset this high default rate by applying higher interest rates to the surviving companies. (Petersen and Rajan (1995)) I would like to test whether the bonding between banks and customers do have a positive impact on the credit risk. Customer satisfaction has become an important issue nowadays. (According to Ernst Young February 2010). How macroeconomics affect credit risk in the banking sector? Macroeconomic views In general credit risk refers to a situation where, a loan not being paid to the lender. (Vitor Castro (2011/2012)). An analyse of credit risk is vital because it signals that a financial sector has becomes more vulnerable to shocks. (Vitor Castro (2011/2012)). This can help the regulatory authorities to take measures to prevent a possible crisis (Agnello and Sousa, 2011; Agnello et al., 2011) and the analyse is important because many banks bankruptcies are related to the huge ratio of nonperforming loans to the total loans. (Heffernan (2005)). The aim of this literature is to find the distinct economic factors that affect the credit risk in the banking sector. There are factors which influence everyone in the economic as such; it is named credit systematic risk. (Vitor Castro (2011/2012)). The main macroeconomic factors are: Employment rate movements, growth in gross domestic product, stock index, inflation rate and exchange rate movements. These ar e the main macroeconomic policies which surely affect a borrowers repaying rate. There are also factors which are limited only to the borrowers and the financial institution. In other word, the unsystematic credit risk (Vitor Castro (2011/2012)): In the case of individual, we have different traits and personality, their financial position and their particular credit insurance (Vitor Castro (2011/2012)) To the companies, management, financial position, sources of funds and financial reporting and their ability to pay the loan and specific factors of the industry sector. (Vitor Castro (2011/2012)) According to many other researches, Aver (2008), Bohachova (2008), Bonfim (2009), Kattai (2010) and Nkuzu (2011) have pointed out that these factors considerable influence on the changes of credit risk. Aver (2008) shows that the credit risk of the Slovenian banking loan portfolio depends especially on the economic environment (employment and unemployment), long-term interest rates and on the value of the stock exchange index. According to other research, Kattai (2010) Fainstein and Novikov (2011) the latters have arrived for the same conclusion basing their study for three countries mainly, Estonia, Latvia and Lithuania). These results have indicated the importance of interest rate and economic growth in the good running of the banking system. The researchers have also pointed out the impact of macroeconomic factors on credit default. Many researchers have concluded that, the macroeconomic have an impact on credit default. Ali and Daly (2010) had compared Australian data and Us data for the period 1995-2009 and they found that, the level of economic activity, interest rates and total debt provide meaningful indicators for aggregate default. According to Pesola (2005) regression model an analyses of the macroeconomic determinants of banking sector distresses in comparison of some industrial countries for the period 1980-2002, the author has concluded that h igh customer indebtedness combined with adverse macroeconomic surprise shocks to income and real interest rates contributed to the distress in banking sector. More precisely, Pesola (2005), Jimenez and Saurina (2006), Bohachova (2008) and bonfim (2009) they concluded by saying that the result of wrong decisions of financing will become apparent only during the period of recession of the economy and this will cause the growth of non-performing loans and loan losses. In other survey, made by Louzis et al. (2012), an analysis of nine greek banks over the period 2003-2009, the author have concluded that GDP growth rate, unemployment rate and also the lending rates have a deep impact on the level of nonperforming loans. Following these analyses of the researchers, I would like to analyse the effect of the macroeconomics on the credit risk and acknowledge whether they are correlated. There are also some analyse work on the credit unsystematic risk. Jimenes and Saurina (2004) and Ahmad and Ariff (2007) had concluded that collateralized loans have higher probability of default and that loans granted by savings banks are riskier and that a close bank borrower relationship increases the willingness for banks taking more risk. It is important to understand the macroeconomic views in order to have an adequate understanding of the impact credit risk on the banking sector. By underlying the basis macroeconomic views, it would be easier to understand the dilemma the bankers are in. Credit Risk in banking According to the Basel Accords, the main risks the banks are facing are credit risk, market risk and operational risk. In the Basel Accords words, credit risk is the risk of loss due to an obligators non-payment of an obligation in terms of a loan or other lines of credit. According to (Joan Selorm Tsorhe p.6) and (R.S. Raghavan, 2003) credit risk is the potential that a bank borrower/counter party fails to meet the obligations on agreed terms. According to Prof Rekha Arunkumar, credit risk occurs when a borrower default to repay the lent money and remain the most important risk to manage till date. The banks cannot have any guarantee that the borrowers would fulfill its obligation. The borrowers may incur any kind of difficulties in a foreseeable future which would result in the crystallization of credit risk to the bank. As such, it is considered as one of the most important and complex risk, the bank may have to deal with. According to Prof Rekha Arunkumar, Credit risk is the ol dest and biggest risk that a bank can faced and by virtue of its very nature of the business inherits. Component of Credit risk According to Wikipedia, Credit risk Consist of type of risk mainly: Credit default risk Concentration risk Country risk Credit default risk refers to the risk of loss arising from a debtor being unlikely to pay its loan obligations in full or the debtor is more than 90 days past due on any material credit obligation; default risk may impact all credit-sensitive transactions, including loans, securities and derivatives. Secondly we have concentration risk; it is associated with any single exposure or group of exposures with the potential to produce large enough losses to threaten a banks core operations. It may arise in the form of single name concentration or industry concentration. Finally, we have country risk which is associated with the loss arising from a sovereign state freezing foreign currency payments (transfer/conversion risk) or when it defaults on its obligations (sovereign risk). Our next section, we would look at how the different banks manage credit ri sk. This is the core idea of this study. Credit risk Management in the Banking Sector Banks earn the core of their income from the differences in the interest rate they set for deposits and loans. As such, lending has always been an integral function for banks. In order to set the appropriate rate, the banks have to assess the credit worthiness of the borrowers. (Andrew Fight, 2004). The banks are in an obligation to set appropriate rate to be able to compensate for the default amount in order to maximize its profit. In order to be competitive, the banks have to conduct an adequate credit risk management framework. This particular framework would help them be in a better position to cope with the difference problems attached to credit risk. According to a search, credit risk takes about 70% and 30% remaining is shared between the other two primary, that is, Market risk and operational risk. Banks can reduce their credit exposure by applying to the following credit risk management principles. The following principles are identified by Fredrick S. Mishkin: Screenin g and Monitoring: It mainly refers to adverse selection which occurs when a bank cannot differentiate between good payers and bad payers. The banks should have some background works on the client and if the loan has been approved, the bank should monitor the borrowers activities. According to Diamond (1984, 1991, 1996), screening and monitoring of loan takers are important functions to banks. According to DellAriccia, Igan and Laeven (2008), before the financial crisis of 2007-2009, banks had reduced their strictness on their monitoring and screening standard. Keys, Mukherjee, Seru and Vig (2010) and Milan and Sufi (2009) have indicated that securitization has somehome reduced the incentives of US mortgage lenders to properly screen borrowers. It can be noted in the beginning of the financial crisis that, banks have improve their screening and monitoring standards, improving their retention rates( according to Wikipedia, retention rates is the ratio of the number of retained cust omers to the number at risk). Long term Customer Relationship: If the particular client have previously deal with the banks, the banks would be in a better position know whether the client is a good or bad credit. This would definitely reduce the cost of information. According to TIBEBU TEFERA (June 2011), long- term relationship enables banks to deal with even unanticipated moral hazard contingencies. According to Galbreath and Rogers (1999), CRM can be described as activities a business performs to identify, qualify, acquire, develop and retain increasingly loyal and profitable customers by delivering the right product or service, to the right customer, through the right channel, at the right time and the right cost. . (according to Ernst Young February 2010). According to a survey in France, 35% of customer has changed banks due to bad services. (Ernst Young February 2010). In another survey, 46% of current level of personal relationship as either bad or limited. Uk 12 pe r cent, Italy 13% and 40% Spanish customers. (Ernst Young February 2010). According to Ivana Domazet, Jovan Zubovic and Marko Jelocnik (2010) has indicated that the two main determinants of the success in the investment banking sector are: customer satisfaction and product quality. As, the customers in the banking sector are well educated about the market, therefore, they are not loyal about any particular brand. Collateral Requirements: According to investopedia, collateral is a property or other assets that a borrower offers a lender to securing a loan. If the borrower stops payment, the lender can seize the collateral to recoup its losses. As such, it can be considered an important tool as it pressures the borrower to meet the demand of the loan contracts. According to J. Peltoniemi (2007), good borrowers quality is associated with higher collateral requirements. In European countries, Davydenko and Franks (2004) concluded that 75.7% of firm loans in France, 88.5% in Germa ny are secured and Gonas et al (2004) argued that 73% loans are secured in US firm loans. According to GreenBaunm and Thakor (1995), First, collateral allows a reduction of the loan loss for the bank in the event of the default of the loan and secondly, collateral helps to solve the problem of adverse selection borne by the bank when lending, as it constitutes a signalling instrument providing some valuable information to the bank. I would like to analyse these particular relationship in my future analysis. Credit Rationing According to (Frederick S.Mishkin, 2004, pp 217-220) it is one way of credit risk management that refers refusing to make loans even though borrowers are willing to pay the stated interest rate or even a higher rate. Diamond (1984), Williamson (1986) and Krasa and Vilamil (1992) concluded that banks success lied in their ability to analyse economies of scope in performing monitoring of borrowers on behalf of lenders. For Thilo Pausch (February 2005), banks have a well-diversified loan portfolio which help them reduced the credit risk. It can be noted that credit rationing is can be considered an important tools for credit management. According to the various researchers mention above, if a bank is able to understand all these concepts, they would be in a better place to control credit risk. Some other principles are listed below: Credit rating agencies Many debt securities are assigned by credit rating agencies. The most common credit agencies S Ps and Moodys. This categorization would obviously facilitate the institution to judge the securities but they should also carry their own classification. Example of classification by moodys are as follows: Moodys S Ps Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 INVESTMENT GRADE AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa Caa3 Ca C HIGH YIELD BB+ BB BB- B+ B B- CCC+ CCC CCC- CC C D Banks use credit ratings as proxies for the quality of collateral. (Jens Hilscher and Mungo Wilson January 2012). The main idea behind these classifications according to Jens Hilscher and Mungo Wilson is that, the credit ratings are thought to provide information about the likelihood of default and other forms of corporate failure. It can be noted that, credit rating in the banking sector are considered an important tools. According to Fitch IBCA views, a companys performance and financial stability, the risks to its operations and the degree of any external support is summarized in a given rating. Loan loss provision The institution should have provided a specific amount of reserve for the obvious losses based on their analysis of the borrowers creditworthiness. The provision which concerned mainly the loan is considered as specific loan (Hong kong Monetary Authority May 1999). As such, the bank would be able to bear the loss of certain loan losses. The bank should also provide a provision for the unexpected losses. These provisions are categories as general provision. Generally, all banks consist of a system of establishment of proper provision. All establishments have their own ways of establishing their own institution provision scheme. According to a Hong Kong Monetary Authority May 1999, the loan provision should be based on the assessment of the recoverability of individual loans or portfolios of loan with similar characteristics. Therefore, it is essential to hedge against credit risk. Risk Processing According to STANDARD POORS the appropriate step should be as follows: Set Credit Objectives and responsibilities Set credit risk Guidelines Collect credit Data Measure Credit Risk Make credit Decisions Monitor Credit Performance Allocate Credit Capital It be noted that the formula for calculation of expected loss are: Expected loss = Probability of default * loss given default (Bank of international settlement 2001) According to Standard poors if any institution follows these criteria they would be in a better place to understand credit risk management. Credit risk processing takes into consideration many internal and external factors of an organization. ( Oesterreichische Nationalbank (OeNB, 2004). This thorough assessment would help the bank to anticipate credit risk more adequately. Credit Culture According to Thomas H.McManus, Senior Examiner (SRC insights: first quarter 2004), a credit culture is the sum of all the characteristics of an organizations unique behaviour in its extension of credit. Another definition can be Credit culture embraces all the factors that bear on credit extension, credit quality and recurrent cyclical patterns and sequences. (Mueller 1995, pp.41). The credit culture of banks also has implications for the smooth transmission of monetary policy as its effectiveness in manipulating movements in lending rates may be diluted if the credit cultures of banks are not driven by prices. (Anthony Birchwood, University of the westIndies, stAuugustine Campus). According to Dam Dan Luy (2010), credit culture encompasses attitudes, perception, behaviours, styles and beliefs that are conducted and practiced throughout the credit organization as a result of management attitudes towards credit risks. As such, credit culture can be considered as an important aspect of credit risk management. Credit culture is considered as the cement that fixes the credit process and forms the foundation for credit discipline. Credit Culture at Goldman Sachs (Risk Management and credit Lending by Prof Albert Ip, December 15 2011) Sophisticated, detailed understanding of risks by senior management Culture of over communication Escalation, Escalation, Escalation Co-option of business unit professionals into risk Management Accountability Long history of Promoting risk Managers Intolerant of lack of control focus Learn from past mistakes To conclude, it can be noted that, there are a variety of risk management framework even though it is impossible to completely eradicate credit risk from the banking sector. In my future research work, I would like to test, if in our local banking system, does the banks have any particular type of credit risk management framework and whether it helps to reduce the credit risk and increase the profitability of the bank. Basel Framework History The first Capital Accord was introduced in 1988. The capital accord was created from the Basel Committee on Banking Supervision. It was a committee of banking supervisory authorities of the G-10 countries. Their main objectives were to establish a framework for bank supervision with a view to strengthen the stability of financial institutions in general and banks in particular. According to the Bank for international settlements (Aug 2009), the committee provides a forum for regular cooperation between its member countries on banking supervisory matters. It seek to achieve these objectives via 3 ways, mainly, by exchanging information on national supervisory arrangements, by improving the effectiveness of techniques for supervising international banking business and by setting minimum supervisory standard in areas where they are considered desirable. (Bank for international settlements (Aug 2009)). The main aspect of the Basel accord 1988 was the minimum capital ratio of capital to risk-weighted assets of 8 per cent by end-1992. The framework has reached practically all countries with an international active bank. The accord was built to be continuously improved to the demand of the world economy. In November 1991, it was amended to give a greater precision to the definition of those general provisions or general loan-loss reserves which could be included in capital for purposes of calculating capital adequacy. (Bank for international settlements (Aug 2009)). There was another amendment taking effect at the end of 1995, to recognise the effects of bilateral netting of banks credit exposures in derivative products and to expand the matric of add on factors. In 1996, there was a amendment concerning market risk. In 1999, there was a new proposal for a new capital adequacy framework to replace the 1988 accord and released in 26 June 2004. It contains three important aspects mainly: minimum capital requirements, supervisory review of an institutions ca pital adequacy and internal assessment process and effective use of disclosure as a lever to strengthen market discipline and encourage safe and sound banking practices. (Bank for international settlements (Aug 2009)). In July 2009, the Basel committee has decided to create the Basel 3 in order to face the changing business industry we live in. How to manage Credit risk under the Basel Framework? Basel framework has pointed out four specific steps in order to manage credit risk (Basel Committee on Banking Supervision September 2000): Establishing an appropriate credit environment Operating under a sound credit granting process Maintaining an appropriate Credit administration, measurement and monitoring process Ensuring adequate controls over credit risk. Establishing an appropriate credit risk environment Principle 1: The board of directors should have responsibility for approving and periodically (at least annually) reviewing the credit risk strategy and significant credit risk policies of the bank. The strategy should reflect the banks tolerance for risk and the level of profitability the bank expects to achieve for incurring various credit risks. Principle 2: Senior management should have responsibility for implementing the credit risk strategy approved by the board of directors and for developing policies and procedures for identifying, measuring, m onitoring and controlling credit risk. Such policies and procedures should address credit risk in all of the banks activities and at both the individual credit and portfolio levels. Principle 3: Banks should identify and manage credit risk inherent in all products and activities. Banks should ensure that the risks of products and activities new to them are subject to adequate risk management procedures and controls before being introduced or undertaken, and approved in advance by the board of directors or its appropriate committee. Operating under a sound credit granting process Principle 4: Banks must operate within sound, well-defined credit-granting criteria. These criteria should include a clear indication of the banks target market and a thorough understanding of the borrower or counterparty, as well as the purpose and structure of the credit, and its source of repayment. Principle 5: Banks should establish overall credit limits at the level of individual borrowers and counterparties, and groups of connected counterparties that aggregate in a comparable and meaningful manner different types of exposures, both in the banking and trading book and on and off the balance sheet. Principle 6: Banks should have a clearly-established process in place for approving new credits as well as the amendment, renewal and re-financing of existing credits. Principle 7: All extensions of credit must be made on an arms-length basis. In particular, credits to related companies and individuals must be authorized on an exception basis, monitored with particular care and other appropriate steps taken to control or mitigate the risks of non-arms length lending. Maintaining an appropriate credit administration, measurement and monitoring process Principle 8: Banks should have in place a system for the ongoing administration of their various credit risk-bearing portfolios. Principle 9: Banks must have in place a system for monitoring the condition of indi vidual credits, including determining the adequacy of provisions and reserves. Principle 10: Banks are encouraged to develop and utilise an internal risk rating system in managing credit risk. The rating system should be consistent with the nature, size and complexity of a banks activities. Principle 11: Banks must have information systems and analytical techniques that enable management to measure the credit risk inherent in all on- and off-balance sheet activities. The management information system should provide adequate information on the composition of the credit portfolio, including identification of any concentrations of risk. Principle 12: Banks must have in place a system for monitoring the overall composition and quality of the credit portfolio. Principle 13: Banks should take into consideration potential future changes in economic conditions when assessing individual credits and their credit portfolios, and should assess their credit risk exposures under stres sful conditions. Ensuring adequate controls over credit risk Principle 14: Banks must establish a system of independent, ongoing assessment of the banks credit risk management processes and the results of such reviews should be communicated directly to the board of directors and senior management. Principle 15: Banks must ensure that the credit-granting function is being properly managed and that credit exposures are within levels consistent with prudential standards and internal limits. Banks should establish and enforce internal controls and other practices to ensure that exceptions to policies, procedures and limits are reported in a timely manner to the appropriate level of management for action. Principle 16: Banks must have a system in place for early remedial action on deteriorating credits, managing problem credits and similar workout situations. The role of supervisors Principle 17: Supervisors should require that banks have an effective system in place to identify measure, monitor and control credit risk as part of an overall approach to risk management. Supervisors should conduct an independent evaluation of a banks strategies, policies, procedures and practices related to the granting of credit and the ongoing management of the portfolio. Supervisors should consider setting prudential limits to restrict bank exposures to single borrowers or groups of connected counterparties. Guideline on Credit risk Management according to Bank of Mauritius The Guideline was issued by the bank of Mauritius for two main purposes. Firstly, it set out the responsibilities and accountabilities of the board of directors and management in credit management and secondly, it outlines the processes to be used in Managing the credit activity in a financial institution. Establishment credit risk policy Ensure credit risk policy is accepted by the board of directors Ensure credit risk policy is accepted by chief executive officer Conduct review and risk policy Committee Credit processing/Appraisal Credit Approval/Sanction Credit Documentation Credit Administration Disbursement Monitoring and control of individual credits Monitoring the overall credit portfolio (stress testing) Credit Classification Managing problem credits/recovery

Hannah Hjerth . Schroder. English Iv Honors. 8 December

Hannah Hjerth Schroder English IV Honors 8 December 2016 Women’s Themes in Frankenstein Mary Shelley, the author of Frankenstein, had been raised by strong women’s rights advocates, which makes her characterization of the women in her story a wildly controversial discussion topic even all these years later. Mary Shelley’s philosopher father paid for her high education, and her mother wrote several works about equality for women. She lived a substantially progressive lifestyle, considering the time period in which she lived. This has raised many questions regarding the weak female characters in her story, due to her own very contrasting beliefs. The female characters in Frankenstein serve as symbols of gentleness and comfort to the males†¦show more content†¦Upon the death of her mother, the Frankenstein family adopted Justine Moritz as the housekeeper of their home. The narrative describes her as the most grateful little creature in the world; as well as very clever and gentle, and extremely pretty (6.7-8). Her character does not ever really develop beyond that. Like all the females in the story, the story describes her as a mild and gentle girl who enjoys serving the household, much fitting the idea of a perfect woman j. Unfortunately, she falls victim to the Creature’s rampage against Frankenstein when he wrongly frames her for the murder of William. Even when being fatally accused of a crime she did not commit, she testifies in a very passive manner; â€Å"God knows how entirely I am innocent. But I do not pretend that my protestations should acquit me; I rest my innocence on a plain and simple explanati on of the facts†¦Ã¢â‚¬  (65). Eventually, a Catholic priest convinces her to confess to the murder, threatening damnation to Hell if she refuses. She has no way to fight for her innocence, especially since no man stood up for her, rendering her powerless. They eventually execute Justine. The execution of Justine demonstrated a double standard in the story. Elizabeth testified for her innocence, but was unable to stop the execution. Later on, when convicted for the murder of his best friend, they acquitted Victor of the crime, even

Diversity in Law Enforcement the Report Free Essays

The Everly Police Department is facing a problem in which there is not an policy or procedure in which complaints from the newly formed Diversity Complaint Bureau can follow to resolve the complaints that are being submitted. Analysis Recently a report was made public by the Minority Police Officers Organization regarding the lack of diversity within the Everly Police Department. Results detailed the fact the Everly Police Department is a male dominated and paramilitary force and it has not taken any steps in order to promote or celebrate it. We will write a custom essay sample on Diversity in Law Enforcement: the Report or any similar topic only for you Order Now Numbers show that the majority of all force members are white males, with the minority being women, Hispanics, African-Americans and Asians. Since this report was made public the newly appointed assistant superintendant of public for administration, Linda Michaelson, has been given the role of damage controller in order to reverse the results of the report and show the public that the Everly Police Department is diverse and that they have the right procedures in place for employees to submit their complaints regarding diversity in the department. Linda started by formulating a plan for a new bureau within the Internal Affairs Bureau called Diversity Complaints. This plan was approved by both the superintendant and the city council and was put into action. The plan brought forward some hesitation from both mid-level field-commanders and union representative as they felt as if someone was always going to be looking over their work and it was not approved into agreements by union officials. The plan was put into action anyway and proved to be successful with 7 complaints submitted within the first month. Complaints are submitted by forms which can be accessed through a variety of sources, including electronically (on-line) and hardcopy (a copy mailed to each employee, and located visibly in all departments). Once a form is complete, it is submitted via email or regular post. From a complete formal complaint, an internal affairs detective would investigate it and form a reasonable resolution. Linda suggested that the ending resolution of a complaint could come in the form of sensitivity training to employees or possible position dismissal of employees involved. Once a resolution has been reached the complaining employee would be contacted. With seven complaints in one month, reviewed and investigated, Linda and her fellow diversity bureau employees had one more step to take and that was to resolve the complaints in fashion in which all parties involved would be disciplined, should the complaint be legitimate after the complaint was investigated. This is where Linda was stumped. Linda needs to formulate a guideline for the Diversity Bureau to follow once a complaints investigation is complete. The guidelines must be fair to the parties involved. Another problem is that each complaint is going to be different so it is going to hard to set a resolution for each and every complaint that may be submitted. Individual(s) Linda Michaelson has been with the Everly Police Department for 22 years and was the key player in the making of the ‘Hostile Work Environment’ report and implementation process of a new bureau within the Internal Affairs Bureau called ‘Diversity Complaint’ within the department. She like most started off as a patrol officer and moved her way up into higher positions within the department. According to the case however, these moves up did not come easily without critism and judgement from other officers, as she was a female in a male dominated field of work. Her positions have included being a patrol officer, a public school safety officer, a contact for the detective bureau and most recently an assistant superintendent of police for administration. Linda’s father was a retired sergeant with the Everly Police Department and always gave Linda advice on how to overcome the biases of her gender in the department. He also was her greatest supporter of following her dreams to keep moving up. He gave advice saying ‘to be the best at what she did’. As now the assistant superintendant of police for administration, one of Linda’s roles was to manage the results of the recently released report, paid for by the Minority Police Officers Organization, on the diversity within the Everly Police Department which came back as quite damaging to the force. Linda was told that her job was to do the damage control for the results. Linda was able to relate and react to some of the complaints being issued and brought forward by fellow department employees as she too has been the subject to gender and sexual harassment in the workforce and has seen others be subject to the same. Linda was influenced by her father to succeed and move higher in the force if she wished to do so. As woman in the male dominated career field she knew it would not be easy and her father was the one who gave her advice on how to proceed, especially if someone got in her way and told her she could not do it, or gave her difficultly doing what she has wanted. Linda knew that even though she was a woman, there was no job within the department that a man could do better than her. With these thoughts she proceeded to move up and not letting anyone get in her way. I believe that the Everly Police Department could have indeed avoided the situation in which they have now found themselves in. Should the Everly Police Department had done something, whether it be their own research, changes with time and the changing workforce in their in existing policies and procedures for complaints, they would not be in such a reputation damaging situation. With the new formation and implementation of a Diversity Complaint bureau within the Internal Affairs Bureau, Linda hope to achieve an easier, more effective and trusting way for employees to have their complaints and biases heard. She also wishes to achieve effective ways to respond and actions to take when dealing with the complaints; a way that the incidents will be resolved and a way that will ensure that they will not happen again. Linda can justify feeling the way she does about the need of this new bureau to be formed in the Everly Police Department as she has been the subject first hand to workplace harassment and the hesitance that many people feel when making a complaint to the superintendant or union member. Linda’s passion to create a diversity complaint bureau that all employees can submit a complaint(s) to without judgement and fear of the complaint being thrown out or not resolved is very much present. This new venture will make all employees, minority or majority, feel a lot more comfortable and place more trust on the organization should there be a procedure in which results and implications are being made. I do not believe that there is another explanation for the current situation in which the Everly Police Department is in. They clearly have an issue of corruption in the complaints department that has now made employees scared, anxious and uncomfortable at their place of work, which is clearly not acceptable. Until this time, there was no talk of trying to fix the issues that they have in regards to diversity within the organization or the policies and procedures for employees to follow to submit complaints. Organization The Everly Police Department has found themselves to now have a very bad public image and bad reputation for being un-diversified. The department never took upon themselves to look into and hire an outside source to research the diversity within the department. Now, an outside organization called the Minority Police Officers Organization has completed that task and has released the results to the public through many media sources. In having these results published severe damage has been done to the department. It shows them to be a male dominated, paramilitary organization, in which has no ability to integrate minorities. The department has also never considered the re-vamping or the new creation of a way for employees to submit complaints in confidence, knowing that action will be reached and not thrown out because of corruption within the complaint process. The department may have also found themselves to be in this predicament as they have never approached employees on the states of the program that they have in place now. They do not know how employees feel about the processes that are in place now and whether or not employees are feeling that the complaints are being adequately resolved and are not reoccurring. Within the Everly Police Department there has been no recent change in the policies and procedures that employees must take to submit a complaint. For years complaints were to be submitted to the superintendant or to a union representative. They then were suppose to take the complaints and resolve the issue at hand. Many times, as stated in the case, these complaints were disregarded as the superintendent or union representative said that the complaint was not legitimate and that the older employees are still adhering to policies from 20 years ago, the one that they were used to. The external environment is pushing the Everly Police Department to change it values. The department is stuck on values that were established 20 plus years ago. The generation that is now being employed is a generation that wants values where everyone is accepted, where there is no discrimination in the hiring process, and where harassment amongst co-workers in any form is not tolerated. In today society many people of all races, ethnic backgrounds, and religions are entering the workforce and are determined to be treated as an equal. There is no explanation or reason why they should not be, they are the same as everyone else and can perform the same tasks no matter what their gender, race, ethnic background or religious beliefs, and the pressure is high for organizations to conform to these societal expectations. External organizations have now gone as far as pursuing their own research studies into the values, policies and procedures of the police department and are publicising reports that are being proven to be very damaging to the department. The present situation could have been prevented if the Everly Police Department’s structure and policies had been different. Should the structure and policies have been updated and revamped with the newer values of the new generation of employees and older employees educated on the ways why they should also open their minds to change, I do believe that the report that the Minority Police Offers Organization has publicised would not have been so damaging. The Everly Police Department has made the right decision in regards to the damage control of the report that was made public. It has taken the right steps in asking Linda to create and implement the new bureau for diversity complaints. Although this move has been long overdue and the reputation of the Everly Police Department has been given a bad name, I believe that it was the push that they needed. This new bureau has already shown to be successful as within one month seven complaints have already been submitted. Now, Linda and the diversity complaint bureau must work together in order to form the right set of procedures that will allow for all complaints to be resolved and limit the complaints on the same action in the future. How to cite Diversity in Law Enforcement: the Report, Essay examples

Significance of Service Encounters-Free-Samples for Students

Question: Discuss about the Service Encounters. Answer: Introduction The customers experience has an impact on any given service industry. The first impression or experience a customer gets decides the success and future of the brand. Generally, various brands are judged on the basis of service encounters and instances when the customers interact with the company (Chang, Chen Lan, 2013). This being said, the service organizations should improve or find new ways of pleasing the customers. This is important especially in cases where the service company interacts with the customers. Moreover, the company should take advantage of this ideal opportunity and ensure the customers are impacted positively. This paper focuses on the impact of services in the hotel industry by taking a look at Hotel Pacific in Australia. Also, this paper will explain how service encounters impact the operations of a business and how the management can get involved. Service encounters may be described as a set of emotions displayed by customers after judging the service quality of a given company. The customers make the judgments based on their experiences and how they are handled. Proper management of several factors translates to customer satisfaction and eventual business success. Significance of Service Encounters There are various processes a customer has to go through when checking in at a hotel or any other service industry. The flow chat shows the various stages in details. In some of these processes, the customer has to get directly involved while in some the customer is not directly involved. In both cases, the management has to be effective and ensure that the services they give to their customers are the best in the market (Coelho Henseler, 2012). The managers have to make sure that their services are well-designed and capable of putting a smile on the customers faces immediately they enter the hotel premises. The emotional feelings that customers express after service experience determine whether the service was satisfactory or not. Therefore, the management has to work extra hard to satisfy the customers. For instance, the customers in a hotel should be engaged and entertained while they wait to be attended to. This will help to ensure that the customers will not develop a negative attitude towards the hotel and the environment. Many hotels have a variety of entertainment options such as magazines, pamphlets, and television sets. This also helps the organization to identify various ways they can engage and keep their customers entertained. The management also has to put into consideration the duration effect. The customer should be made aware of the various operations in the hotel which include the room service, dinner, and the rules to be followed during their stay. Another area of interest that is likely to affect the satisfaction of customers is the level of control that the customers have in the process. For instance, the hotel management can create an option which will enable the clients to book their room online. This will improve the efficiency of the whole process and save a lot of time which would have been lost in the process. Therefore, the level of a customers satisfaction is directly determined by the control he or she has in the process. However, this does not apply to the internal systems which do not directly involve the customer. In these cases, fairness, professionalism, and justice have to be ensured in the process so that the clients can feel a sense of engagement (Wilson, Zeithaml, Bitner Gremler, 2012). Service encounters should help a business understand what customers need. The business should also see this as an ideal platform to get feedback from the clients and make the necessary amendments if needed. Managerial Implications As stated above, the service company should see the service encounters as an opportunity to please the customers and ensure they leave the premises satisfied. Evidently, service encounters are judged by many qualitative factors. The service encounters and the managerial implications have a direct effect on the ROI since they influence the type of brand that a customer chooses (Sirianni, Bitner, Brown Mandel, 2013). This is evident especially in the hotel industry where customers are very selective and demand high-quality services. In the modern hotels, the facilities and infrastructure are the same; it is only the services that differ. The management should focus more on the service psychology when conducting their business activities since this will enhance the service encounters. The management should identify the various processes and interactions the customers have to go through during their stay in the hotel and identify the processes that may affect the customer negatively (Wi rtz, 2012). The management also needs to improve the hotels operations so that the customers are enlightened about the complete process, the various steps, and the duration (Wirtz, 2012). This will help in improving the satisfaction of the customers and also reduce the ambiguity of the whole process. Moreover, the hotel will reduce losses since the reworks are far less in the absence of ambiguity. It is also important for the hotel to utilize these experiences maximally by selling the various services offered. Most organizations have not been able to develop a system which can enable them to manage and cope with the demand and supply needs. Therefore, the hotel can apply a psychological approach which will help in meeting the needs (Prentice King, 2013). This will increase the customer satisfaction who will in turn not hesitate to refer their friends. Additionally, the brand of the hotel will be improved and more clients will be willing to taste the services offered. The management should also consider the internal operations which do not directly involve the customers. Though the customers are not directly involved in these processes, they are quite essential for the smooth running of the hotel and also impact the customers satisfaction (Mudie Pirrie, 2012). The modern hotels and other businesses are spending fortunes advertising their services and brands on various media p latforms (Verhagen, Van Nes, Feldberg Van Dolen, 2014). However, this might not be necessary if they offer quality and satisfactory services. If their services are right, then they will get more long-term clients with minimal costs References Chang, C. S., Chen, S. Y., Lan, Y. T. (2013). Service quality, trust, and patient satisfaction in interpersonal-based medical service encounters.BMC health services research,13(1), 22. Verhagen, T., Van Nes, J., Feldberg, F., Van Dolen, W. (2014). Virtual customer service agents: Using social presence and personalization to shape online service encounters.Journal of Computer?Mediated Communication,19(3), 529-545. Prentice, C., King, B. E. (2013). Emotional intelligence and adaptabilityservice encounters between casino hosts and premium players.International Journal of Hospitality Management,32, 287-294. Coelho, P. S., Henseler, J. (2012). Creating customer loyalty through service customization.European Journal of Marketing,46(3/4), 331-356. Sirianni, N. J., Bitner, M. J., Brown, S. W., Mandel, N. (2013). Branded service encounters: Strategically aligning employee behavior with the brand positioning.Journal of Marketing,77(6), 108-123. Mudie, P., Pirrie, A. (2012).Services marketing management. Routledge. Wilson, A., Zeithaml, V. A., Bitner, M. J., Gremler, D. D. (2012).Services marketing: Integrating customer focus across the firm. McGraw Hill. Wirtz, J. (2012).Essentials of services marketing. FT Press