Periodically evaluating a bank’s performance provides a check on its progress toward meeting established goals and helps identify weaknesses where corrective action should be taken. The performance review helps identify problems in their initial stages when they are less costly to correct. For this reason, most boards review their bank’s financial progress each time they meet. This is true at Insights Bank and Trust where the financial report is a standing agenda item.
A bank's financial statements present the end result of its acceptance and management of risks. These risks emanate from a wide variety of internal and external sources. Many of these risks are basic to the business of banking and are similar from bank to bank, regardless of the bank’s size.
In this lesson you will learn about these risks and more specifically what is referred to as “portfolio risk” and how banks assess, assume and manage their portfolio to earn profits. You will also learn how risks are interrelated and how any given asset or liability can present a bank with multiple risks.
When you finish this section of the course, you should be able to:
- Define the types of risks banks face.
- Specify the sources of portfolio risk for banks.