Risk Management

Types of Banking Risks

The Federal Reserve System has established a banking risk framework that consists of six risk factors: credit, market, operational, liquidity, legal, and reputational risks. During examinations, institutions' risk management structures are reviewed using these risk categories.

Financial Institution Risk Management Programs

The Fed has also identified four key infrastructure components of effective risk management programs:

• active board and senior management oversight
• adequate policies, procedures, and limits
• adequate risk-measurement, monitoring, and management information systems
• comprehensive internal controls

Each type of risk, in turn, has its own specific types of risk controls.

Federal Reserve Bank of Chicago Risk Committee Findings

Every quarter, the Chicago Fed's Risk Committee meets to determine the top banking risks facing Seventh District banks in the upcoming months, and to develop appropriate supervisory responses. The following list of top banking risks incorporates the November 2007 results. Since banking conditions rarely change dramatically from quarter to quarter, the list of top risks tends to change only gradually over time.

We hope you find the Risk Committee's list useful, providing you with some insight on current concerns of bank supervisors.

• Credit Risk
• Market Risk
• Liquidity Risk
• Operational Risk
• Legal/Reputational Risk