BankersHub.com April/May, 2018 Newsletter Page - 1 CREDIT CULTURE: IDENTIFYING AND MEASURING YOUR BANK’S RISK PROFILE (PART 7 OF 8) By Dev Strischek ABOUT THE AUTHOR(S) Dev Strischek is a leading expert in Credit Risk Management, with 18 years as SVP – Sr Credit Policy at SunTrust, 20+ years as Boardmember of Risk Management Association, and Advisory Boardmember of the ABA School of Commercial Lending. Dev is a regular speaker and member of the BankersHub faculty. Email: [email protected]ABOUT BankersHub BankersHub was founded in 2012 by Michael Beird and Erin Handel, 2 Financial Services professionals dedicated to educating and informing banks, credit unions, solution providers and consultants in the U.S. and worldwide. BankersHub delivers best practices, research insights, opinions, economic trends and consumer views through online web education, virtual events and conferences, live streaming activities, custom training and content development. Newsletter Article April/May, 2018 Introduction In Part 6 of this BankersHub series, we learned that a bank’s risk rating system allows us to measure the transaction risk in individual transactions, the loan portfolio’s distribution the intrinsic risk of various types of lending, and the aggregated exposures by borrower, industry, geography, etc. - the concentration risk in the portfolio. In this month’s article, we discuss how to identify and measure a bank’s risk profile. Let’s begin with transaction risk. Transaction Risk Let’s look at two banks, Left Bank and Right Bank, to illustrate how to measure transaction risk. Suppose both banks employ the same risk rating system, and the relative percentages in each grade are as follows:
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and Erin Handel, 2 Financial Services professionals
dedicated to educating and informing banks, credit unions, solution providers and consultants in the U.S. and worldwide. BankersHub delivers best practices,
research insights, opinions, economic trends and consumer views through online web education, virtual events and conferences, live streaming
ctivities, custom training and content development.
Newsletter Article
Introduction
In Part 6 of this BankersHub series, we learned that a bank’s risk rating
system allows us to measure the transaction risk in individual transactions,
the loan portfolio’s distribution the intrinsic risk of various types of lending,
and the aggregated exposures by borrower, industry, geography, etc. - the
concentration risk in the portfolio. In this month’s article, we discuss how to
identify and measure a bank’s risk profile. Let’s begin with transaction risk.
Transaction Risk
Let’s look at two banks, Left Bank and Right Bank, to illustrate how
to measure transaction risk. Suppose both banks employ the same
risk rating system, and the relative percentages in each grade are