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In conjunction with the underlying frameworks, basic risk management process that is generally accepted is the practice of identifying, analyzing, measuring, and defining the desired risk level through risk control and risk transfer.
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(Holmström and Tirole 2000) “This article testing the hypothesis that the banks with additional risky loans and high interest-rate risk disclosure would select loan and deposit rates to attain high interest rate limits. [Accessed 6 September 2019]; Available from: https://
Call Report information relating to banks for 1989–1993 show that the net interest rate limits of commercial banks imitate the default and interest-rate risk. Risk Management in Financial Institutions [Internet].
BCBS (2006), on risk management processes, require supervisors to be satisfied that the banks and their banking groups have in place a inclusive risk management process.
This would include the Board and senior management to identify, assess, examine and manage or mitigate all material risks and to assess their general capital adequacy in relation to their risk profile.In addition, as suggested by Al-Tamimi (2002), in managing risk, commercial banks can follow comprehensive risk management process which includes eight steps: exposure identification; data gathering and risk quantification; management objectives; product and control guidelines; risk management evaluation; strategy development; implementation; and performance evaluation (e.g. A comprehensive explanation of risk management in Islamic banking are made by Akkizidis and Khandelwal (2008) covering the aspect of risk management issues in Islamic financial contracts, Basel II and Islamic Financial Services Board (IFSB) for Islamic financial risk, and examining the credit, market and operational risk management for IBs.They also explain the unique mixes or risk for each financial contracts in IBs.Moreover, Iqbal and Mirarkhor (2007) explain that the context of risk management in IBs covering the aspect of the needs for risk measurement, management and controls in IBs and highlight the comprehensive risk management framework for each unique risk with the references of IFSB standards.Greuning and Iqbal (2007) discuss the three major modification of theoretical balance sheet of an Islamic bank that has implications on the overall risk free of the banking environment.Apart from that, the contractual role of various stakeholders in relation to risk is also been highlighted.According to IFSB, the primary aim of releasing its risk management standard stems from the recognition that although “certain issues are of equal concern to all financial institutions” (IFSB, 2005) some risks are localized to IBs and as such, these principles “serve to complement the BCBS guidelines in order to cater the specificities of IBs” (IFSB, 2005).This approach could be applied with value at risk as the measure of risk or portfolio standard deviation”.(Dowd 1999) “This article explain the use of credit derivatives by corporate treasurers.Financial Corporations have in recent years, become grown with the idea of using traditional derivative products to hedge their exposure. Credit risk, interest rate and on the other side, has to approven a more difficult tame.The inner theme of risk management is that the risk faced by the managers in financial institutions and the methods and markets through in which these risk are managed are becoming gradually more similar whether and financial institutions is acting as noncommercial bank and commercial banks, investment bank, saving bank or loan providing and insurance companies.even though the rational nature of each sectors such as quality securitization, international banking off balance sheet banking”.(Saunders, Cornett et al.