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Archive » February 2025 » Risk management systems in banks: what, why and how

Risk management systems in banks: what, why and how

Marco Di Antonio
February 2025 - n. 2
Keywords: Banche, risk management
Jel codes: G21, G28, G32

The paper analyses the state of the art and the perspectives of Risk management systems in banks. In doing so, it starts from the basic questions and conceptual pillars of these systems: what is risk? What are the objectives in the management of risk? Is it possible to measure risk? The focus is on the first question. Three alternative definitions of risk are given: not attainment of bank's objectives (strategic approach), decrease of profits (accounting approach), decrease of the value of the bank (financial approach). While the initial definition is the most accurate and complete, the second and third definitions are more prevalent in both regulatory contexts and practical applications. When comparing economic definitions of risk, i.e. accounting and financial risk, the latter is preferable. The financial risk extends the time horizon of the analysis, from short term to long term, and incorporates risks that negatively affect intangible capital and, consequently, the bank's overall value.

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