What is the risk in financial institutions?

The potential lack of transparency is a risk in financial institutions. Most global capital markets are at some point in financial institutions, including investment banks and money management companies such as hedge funds and mutual funds. Greater regulation in certain financial services pockets reduces the level of risk to which banks and markets are exposed. If the bank is so large and so influential that its extinction would have a ripple on the economy, the risk in financial institutions of this kind is great. A potential sharing of sensitive information in a wrong way is another risk factor around financial companies. Securities, such as credit derivatives, are often traded in an effort to protect other exposures and make money for the bank itself except clients. Since the bank can invest money from its own balance sheet to increase profits generated in the company, the risk in financial institutions increases due to the possibility of bad trades or unexpectedH losses. These deficiencies may cause a decline in revenue, which is reflected in the balance sheet - the reference of financial health of the institution.

Another risk in financial institutions surrounds the potential of overlapping within the company. In particular, some banks are so large that there are different features that take place, from financial analysis to investment banking. The ethics line could easily blur when the company benefits with the client based on the way public investors treat shares. Regulation and industrial practices such as the Chinese wall have evolved to cause separation between these roles, so there is less tendency or likelihoods of inaccuracy.

There are ways to mitigate the risk to the company and the wider economy. For example, some financial institutions are so large and perform such a large volume of financial transactions that any bankruptcy or other failure couldo Pose a systemic risk to the economy. Regional regulation, which requires transparency in the types of transactions carried out by banks and other financial companies, and strategies support less risk. The more, the more, the highest executives, such as CFO, and risk experts, such as the main director for compliance, communicate and coordinate goals, the more likely the risk in financial institutions is a decrease.