ABC Bank officials view compliance with regulations as a necessity for the very survival of their business. The leadership team at ABC also understands the impact that banks have on the aggregate economy, particularly the ramifications of mismanaged risks within banks. ABC’s leadership team believes that a holistic understanding of the intricacies of risk management within banks as well as the impact of risk on the economy is necessary to drive the desired behavior. As a result, you have been hired to facilitate a presentation for ABC’s new hires. Your presentation should be composed in PowerPoint or Prezi and must be submitted to ABC’s HR department for approval by the end of the week. Along with the slides, you must also submit notes on what you will say during the presentation. You should use the Note feature at the bottom of the PowerPoint slide to submit the notes.
Your presentation and notes should include the following:
Identify three ways that banks impact the economy. Include clear examples and well-defined reasons.
Identify two regulations and describe their origin and role in managing risks within banks.
What risk management standards did the banks employ as a result of the regulations?
What are the consequences of failing to meet the standards outlined by the regulators?
Would a firm be prudent to properly manage its leverage and liquidity levels if they are not regulated? Why or why not? What tools can organizations employ to manage the risks caused by inadequate levels?
LTD Acceptance is a private property and auto insurance carrier that specializes in sports cars and motorcycles. This organization is owned by LTD Capital, a large equity group with over 15 holdings. LTD Acceptance is the parent company’s single largest holding as it drives 70% of total revenue. Due to the inherent risk involved in that segment of the market, many of LTD Acceptance’s competitors do not offer policies for sports cars or motorcycles. This market segment is underserved which is why the organization has 20,000 active policies for a sports car or a motorcycle.
LTD is headquartered in Houston, TX. LTD does not sell insurance directly to the public. Instead, it uses third-party agents to sell its policies. LTD handles all customer service needs including claims intake, policy services, and general questions. The company operates in four states: California, Texas, Louisiana, and Florida. Currently, LTD does not have an active system in place to ensure that its agents are in fact using LTD guidelines to screen potential policyholders. However, no evidence of negligence has emerged so far as the organization has yet to have a year in which it was not profitable. LTD has also had the good fortune of not suffering losses because of natural disasters or catastrophic events.
In your first days of your new role as the senior risk analyst, you know your first task is to complete a framework for adequately identifying risk exposures. During this process, you realize that many of your counterparts lack the basic understanding of how to identify risks. Your supervisor has come to you and asked for a report outlining the importance of identifying risks to support risk management activities and positively impact the company’s bottom line. If your counterparts do not understand your report, you know that you will have minimal support in your efforts to manage the organization’s risks effectively.
For your report, you have been asked to analyze and address the following:
Why is identifying risk exposures significant? What are the ramifications for organizations that fail to properly identify risks they are exposed to?
What are the market risks LTD encounters?
What business risk does LTD encounter in its day-to-day operations?
What compliance and human capital risks might LTD face?
How do risk management activities correlate with overall productivity?
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