Financial Risk Manager Part 1
Prime Bank, a global systematically important bank (G-SIB) has incurred big losses resulting from a range of issues, including too many bad debts due to improper lending decisions and investment in futures without prior due diligence. The bank is now in deep capital problems and struggling to meet day-to-day funding needs. The bank's management turns to an expert of the Basel committee recommendations for advice. Which of the following potential benefits would result from risk data aggregation, particularly taking into account the bank's current situation?
Other
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A
Increased bank efficiency.
B
A clearer definition of the bank's risk appetite.
C
Improved resolvability of the bank's problems.
D
Improved data confidentiality, integrity and availability.
Explanation:
Explanation
Aggregating risk data can significantly enhance the ability of regulators to resolve the current undercapitalization and liquidity issues that Prime Bank is facing. Risk data aggregation involves the consolidation of data from various sources to provide a comprehensive view of the risk profile of an organization. This holistic view can help identify areas of vulnerability, assess the potential impact of various risk scenarios, and develop effective mitigation strategies.
In the context of Prime Bank, risk data aggregation could provide valuable insights into the root causes of its current capital and liquidity problems, thereby facilitating the development of targeted solutions. Moreover, it could also aid in the identification of potential future risks, enabling the bank to take proactive measures to prevent similar problems from arising in the future.
Why Other Options Are Incorrect:
Choice A is incorrect: While aggregation of risk data can lead to better decision-making and potentially increase bank efficiency, it does not directly address the immediate capital and funding problems that Prime Bank is facing. The benefit of increased efficiency would likely be realized over a longer term, rather than providing an immediate solution to the bank's current predicament.
Choice B is incorrect: Aggregation of risk data could help in defining the bank's risk appetite by providing a clearer picture of its overall risk exposure. However, this again does not directly address the urgent issues at hand - namely, the capital and funding challenges that are threatening the bank's solvency.
Choice D is incorrect: Improved data confidentiality, integrity and availability are important aspects of information security management but they do not necessarily contribute to resolving financial or operational problems faced by a G-SIB like Prime Bank. These benefits are more related to preventing cyber threats or ensuring compliance with data protection regulations rather than addressing issues related to bad debts or inadequate due diligence in investment decisions.