As banks strive for value creation in a highly competitive environment, they inevitably create risks. The greatest threat to a financial institution is when such risks are not properly identified, measured or managed. In these circumstances the result is invariably unexpected losses which, as the financial crisis has demonstrated, can threaten the existence of banks of all sizes.

 

The regulatory response to recent events is contained in Basel III which sets out to make capital requirements more risk-sensitive, enhance risk coverage and strengthen the loss absorbency of available capital.