Assignment on the risk profile of Banks of Albany New York

Table of Contents

1 Introduction 3

2 Possible bank risk issues 4

2.1 Credit risk 4

2.2 Counterparty risk 4

2.3 Market risk 4

2.4 Structural risk 5

2.5 Operational risk 5

2.6 Liquidity risk 5

3 Risk profiles 5

3.1 The risk profile of US credit union 5

3.2 The risk profile of Cap Com 7

3.3 The risk profile of Sefcu 10

4 Summary 12

5 Conclusion 13

6 References 13

The risk profile of Banks

1 Introduction of the risk profile of Banks of Albany New York

Despite the increasing significance of the banks in the world, the regulatory structures of banks are still facing the jurisdictions. The capital issues are the securities that fall due to certain neglected conditions. The risk profiles are meant to indicate several possible structures from different bank dominated conglomerates. The present work aims to address the different questions by evaluating the risk profile of typical banks of New York. The typical analytical issues that are related to the risk are proposing policy issues and aggregation. In the banks, the internal risk and capital management framework are designed to overcome the issues (Ayadi, Keoula, Groen, Mathlouthi, & Sassi, 2017).

 The analysis adopts different approaches that allow the risk policies in the business to find the effects and solutions. The unique issues are also considered based on the issues and how they can be reduced. The banks under consideration in the present work for the risk profile assessment include US credit Unions, Cap Com and Sefcu banks of Albany, New York. The risk analysis is committed to finding ethical, sustainable growth, and business practices. Strong risk management includes social and environmental operating principles (Sathye, 2020; Icbc. com. cn, 2018). The risk policy frameworks are articulated to outline the social and environmental issues. The impact of issues is measured for the communities, company, employees, clients, and vendors. The social risk policy framework used in the model will provide transparency and clarity about the approaches used by the individual bank.

2 Possible bank risk issues of profile of Banks of Albany New York

The business model of all the banks is dependent on the geographical areas in which it operates but in the present work all the banks are considered from Albany, New York. These banks operate in different framework to control the risk issues by the regulatory environment, adopting the circumstances, and addressing the management globally. The models are designed for risk management that can be adapted by the proper strategy and risk profile entity (Ayadi, Keoula, Groen, Mathlouthi, & Sassi, 2017). The risk inherent in the banks make the risk profile and these risk issues are as following,

2.1 Credit risk of profile of Banks of Albany New York

Credit risk is associated with the probability that one of the financial instruments fails to meet the required obligations due to inability to pay and insolvency and sometimes due to the financial loss. The issue includes counterparty risk, country risk, liquidation risk, and issuer credit risk.

2.2 Counterparty risk of profile of Banks of Albany New York

Such issues arise due to the possibility of losses that were derived from the positions in the reports and derivatives (Businesscredit. dnb. com, 2020).

2.3 Market risk of The risk profile of Banks of Albany New York

The market risk arises due to the possibility that some losses may be losses in the values of positions, market variables, and other valuation of financial assets and products that are linked with the trading activity. The issues come due to an increase in the interest rates, exchange rates, commodity price, and fluctuation in bonds (Sathye, 2020).  

2.4 Structural risk of profile of Banks of Albany New York

The structural risk can be divided into the interest rate risk, entity net interest income, and structural currency risk. 

2.5 Operational risk of profile of Banks of Albany New York

The operational risks are those who could potentially cause losses due to inadequate or faulty internal processes of the bank, human errors, system failure, and external events. The issues are often a legal risk, business risk, strategic risk, and reputational risk (Dnb. com, 2020).

2.6 Liquidity risk of profile of Banks of Albany New York

 The liquidity risk arises due to having issues and problems in the duly meetings and payment commitments. In such situations, the funding undergoes burdensome terms that result in harm to the bank reputation and image.

3 Risk profiles

3.1 The risk profile of US credit union

The business model of US Credit Union in Albany, New York can be stated as it provides the information of wealth to the market participants such as depositors, regulators, participants, creditors. Some other strategies are designed to control the behaviour of bank in the market where they are active about the contribution of systematic risk, time, and risk profiles. Figure 1 below provides the relation of risk-weighted assets with distance to default for US credit union.  The estimation results show a persistent relationship between the distance to default and regulatory risk measures as a negative relation. The entire result of the graph shows a negative result. The scattered plot of the observation is mainly about the investment-oriented banks and wholesale-oriented reports (Ayadi, Keoula, Groen, Mathlouthi, & Sassi, 2017). 

The positive relation from the graph implies that risk-weighted assets are inversely related to the underlying risk issues. The relationship becomes weaker when the capital is fully controlled. This implies that banks with the greater risk-weighted assets hold high capital that is partly offset for the lower risk profile. The estimation of the bank size also contributes a lot with the line of expectations. The analysis and reports provided by US Credit Union bank capture the underlying risks associated with the business model and exposes to the loans. The relation defined two measurements of risk that are ambiguous and require controlling of capital levels. The performance of the bank is comparable and approximately like the large banks. The risk profile of bank in Albany is barely better as compared to the other mid-sized banks as they are facing more risk issues (Sathye, 2020).  

Another factor that induces impact on the risk related issues is transactional internet banking (TIB) that refers to the normal functionality of the bank for the customers and how it provides transaction, online system, and transfer of funds. The reports provided by the bank worked to evaluate the impact of the transactional internet banking on the risk profile and performance of the major credit unions. The performance was evaluated by linear programming techniques and data envelopment under the relevant and required explanatory variables. The reports of the bank about the union credits show that TIB did not have a significant and drastic impact on the risk profiles and performance of credit unions (Sathye, 2020). As compared to the commercial banks, the credit union bank operates with different constraints such as membership, small size, geographical area, membership confined occupation, and limited transaction volumes. These number of processes make it hard to find the benefits of technology.  

Due to limited operations of the credit unions, the performance-enhancing tools may not help in finding the significant associations. The common bonds and customer services provide competitive advantages to the credit union and it changes from low to the high transaction volume. The innovative instruments used by credit unions provide securitization of loans but face rate risk, off-balance-sheet risk, credit risk, and price risk (Ayadi, Keoula, Groen, Mathlouthi, & Sassi, 2017).    

Figure 1: Risk-weighted assets relation with distance to default for credit union bank of New York

3.2 The risk profile of Cap Com

In Albany, New York, CAP COM federal credit union has been operating and serving since 1953. It is considered as a 12th largest credit union in New York. The calculated total assets are nearly $1.94 billion, and it provides banking services that work for 137,000 members (Creditunionsonline. com, 2018). The credit union provides the member-owned financial cooperative services as the financial banking service with the number of groups. The groups are primarily serving the utilities and communications of employees. The membership is open to the immediate members of the registered members. In this section, different risk issues are considered for the CAP COM. The impact of the banking services is considered for the credit downgrade issues and it can be measured from the mark to market on the derivative contracts  (Thevault. exchange, 2013). 

The impact of the liquidity is measured for the potential exposure and capital management committee (Cap Com) model for the stress testing process. The bank operates a liquidity governance framework that exposes the risk. The framework works efficiently for the exposure of active management risk liquidity through the capital management committee (Cap Com) and other subcommittees. The Cap Com works to establish the liquidity risk standards that fulfil the regulatory and prudential requirements. The other responsibilities of the system are to review and make strategic decisions based on matters that are related to liabilities, liquidity of assets, and compositions. Besides that, some other consideration is the review and approving the funds, liquidity position, effectiveness of stress and review of completeness (Dnb. com, 2020; Barr, Catherine, & Raimbault, 2012). 

The Cap Com committees can also be demonstrated as compliance and liquidity contingency management that respond to the heightened liquidity risk. The market risk associated with the operations is based on the governance framework. Market risk management units measure trading activities, independent trading operations, trading activities, banking activities, risk exposure, and other banking processes (Icbc. com. cn, 2018). The risk management techniques used for the assessment of risk includes daily value at risk (VaR), stressed value at risk (SVaR), risk factor market risk, economic value of equity, annual net interest income, and market risk factors. The risk exposure that is related to the banking sectors mainly deals with the management of potentially adverse issues. In the present consideration, the risk is transferred to the management, liability management team and asset management that monitor the local risk management. The main analytical technique is used to quantify the valuation-based measures (Ayadi, Keoula, Groen, Mathlouthi, & Sassi, 2017). 

The annual reports of the bank show emergence of increased liquidity risk, third party attack on the online transaction system, and security issues. Under the present condition, the existing business model of the bank in Albany does not run the substantial interest rate risk in the banking process. They are monitoring the current yield curve risk and repricing model. The approach, if implemented can deem the appropriate quantum of risk. Cap Com manages different types of strategies related to the processes for the hedging of all the defined capital resources. In this case, the denominated currency is other than USD and the cost base conditions incurred the currencies instead of USD (ICBC. com. cn, 2018). 

Figure 2: Analysis of trading profit

Figure 2 below provides a detailed analysis of trading profit. The volatility is not available for earnings and resources. In the execution of the hedging strategies, Cap Com consider the effectiveness, cost and the accounting impact of the proposed strategies and then consider if it provides the economic rationale. Cap Com sometimes delegate the execution of transactions for the mandatory hedging. Cap Com monitors all new and capital hedges that can be executed with the effectiveness (Icbc. com. cn, 2018).  

3.3 The risk profile of Sefcu

Secure services, LLC is mainly working in Albany, New York, United States. The services are part of the credit union industry and the banks in New York. The services are provided to the client through 102 total employees across the locations. The credit reports and detailed business reports provide information about credit decisions and the management of risk (Dnb. com, 2020). The services are under the well-developed monitoring and management system. the reports quickly determine the risk of late payment of the company and identify how the credit can be extended based on the company. Risk issues are associated with the identification of credit, late payment, past payment behaviour, credit extended conditions, and recommendations. The detailed one-time report provided by official data of Sefcu help in mitigating the potential business risk and by accessing the operations, filing records, and financial performance. avoiding late payment is an indicator of supplier evaluation risk (SER), delinquency predictor score and other factors. The services provide instant access to the business credit database (Ayadi, Keoula, Groen, Mathlouthi, & Sassi, 2017). 

The user can monitor the business risk of the company proactively. Even the services are under strong monitoring but the issues of security attacks and third-party access are still there. The risk exposure is associated with business credit profiles. The real-time detailed credit reports are based on the risk assessment of existing and new relationship at international levels, verification of the scope, size and existence of the business,  review of the financial information, access of ratings and scores, and monitoring of multiple companies under the modern dashboards of SEFCU (Sathye, 2020). 

The regular and proactive monitoring of the services linked with the business credit risk can help in the protection of the company. it minimizes potential bad debt write-offs. The management of SEFCU take initiatives to reduce the risk issues and the prime concern is to low down the significant issues. the issues were mainly related to the users who can not access their money from home and the protected shape and form was not provided to the users (Ektinteractive. com, 2010). Table 1 below provides the risk-based capitals and approaches.

Table 1:   Risk-based capitals and approaches

Risk type	Approach
Credit risk	Standardized approach
Counterparty credit risk	Standardized (mark to the market method)
Operational risk	The standardized approach (TSA)
Market risk	Internal model approach (value at risk)

The total credit risk exposure of SEFCU was less than 5% in the previous years and it was mainly due to the lower balances. The moving process includes equity-backed marginal loans, services and other processes. The potential joint initiatives were supported by the capabilities. The market risk faced by SEFCU include stress testing issues, stressed VaR, market risk exposure, and limits. The interest rate risk remains in the approved limits. The emphasis of the market risk in 2019 was on the implementation of new standards for capital requirements and market risk. The operational risk for the previous years was linked with the risk appetite (Creditunionsonline. com, 2018).

 The legal expenses remained continued to be incurred for the functions of assurances, transactions, and operational risk functions. Capital management was analyzed and remained sufficiently capitalized. The minimum regulatory capital adequacy and leverage ratio requirement was 5.02%. the capital resources are required to remain to continue for the management to ensure that the services meet the requirement of business and planning horizons. Different forms of the business requirements require capital resources and continue to ensure the regulatory capital rules in SEFCU (Businesscredit. dnb. com, 2020; Economictimes. indiatimes. com, 2019).   

4 Summary of The risk profile of Banks of Albany New York

The board of risk management committee represents the highest authority to take the design in US credit union, Cap Com, and SEFCU. However, the board is not capable and allowed to make decisions for certain delegate functions. Figure 3 below provides a risk management framework to mitigate the issues. the primary risk management committee reports about the matter and significance of the issues to the risk management. the risk strategy is then developed to measure the current risk, the highest authority in the board have access to conduct the risk issues. the alternative issues are designed under such mechanism that supports the delegated matters, tolerance, and risk appetite. The committee performs a specific review of operations, market, credit, physical commodity risk, liquidity and responsibilities of compliance risk (Brighthubpm. com, 2020; Rausand, Marvin, Haugen, Stein, 2020).  

 

Figure 3: Risk management committee

5 Conclusion of the risk profile of Banks of Albany New York

The present work aimed to conduct a risk assessment of US credit union, Cap Com, and Sefcu in Albany, New York, United States. The risk profile disclosure was conducted for internal and external risk assessment. The report focusses on capital risk and key risk drivers. Also, the report's data was accessed to find the solution and alternatives to these risk profiles. The report confirms that intended risk issues can be reduced by better maintenance of capital adequacy level. 

6 References of the risk profile of Banks of Albany New York

Ayadi, R., Keoula, M., Groen, W. P., Mathlouthi, W., & Sassi, I. (2017). Bank and Credit Union Business Models in the United states . Retrieved from institutcoop.hec.ca: https://institutcoop.hec.ca/wp-content/uploads/2017/10/BBMM-2016_US-2-1-1.pdf

Barr, M. A., Catherine, M., & Raimbault, A. (2012). Emerging Risks: A Strategic Management Guide. Gower Publishing, Ltd.

Brighthubpm. com. (2020). Risk Assessment Methods in Project Management. Retrieved from www.brighthubpm.com: https://www.brighthubpm.com/risk-management/110139-an-overview-of-project-risk-assessments-with-samples/

Businesscredit. dnb. com. (2020). Business Information Report™ Snapshot. Retrieved from businesscredit.dnb.com: https://businesscredit.dnb.com/product/bir-snapshot/

Creditunionsonline. com. (2018). CAP COM Federal Credit Union. Retrieved from www.creditunionsonline.com: https://www.creditunionsonline.com/credit-union-496.html

Dnb. com. (2020). Company Profile. Retrieved from www.dnb.com: https://www.dnb.com/business-directory/company-profiles.sefcu_services_llc.22508f1773ff54010196c6246581f44d.html

Economictimes. indiatimes. com. (2019). Definition of 'Risk Management'. Retrieved from https://economictimes.indiatimes.com/definition/risk-management

Ektinteractive. com. (2010). Business Processes and Risk Management. Retrieved from www.ektinteractive.com: https://www.ektinteractive.com/business-processes-risk-management/

Icbc. com. cn. (2018). Pillar 3 Disclosures . Retrieved from v.icbc.com.cn: https://v.icbc.com.cn/userfiles/Resources/ICBC/haiwai/StandardBank/Download/2019/Pillar_3_Disclosures_2018.pdf

Rausand, Marvin, Haugen, Stein. (2020). Risk Assessment: Theory, Methods, and Applications. John Wiley and Sons.

Sathye, M. (2020). The impact of Internet banking on performance and risk profile. Retrieved from citeseerx.ist.psu.edu: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.199.2112&rep=rep1&type=pdf

Thevault. exchange. (2013). Standard Bank Plc . Retrieved from thevault.exchange: https://thevault.exchange/?get_group_doc=18/1424195218-SB-Plc-AR-13.pdf