Banks are considered to be some of the highly leveraged high-risk takers. In the event of a miscalculation, the repercussions can be dreadful and result to enormous losses or closure of the bank (Perez, 2014). Banks are exposed to risk all the time. It is the price they pay for the desire to realize profits. The risks occur due to predictable and unpredictable events in the financial market and the economy. They may also occur due to staff oversight, which causes loss in staff principles. When a risk occurs, the intrinsic value of the bank is abridged. The paper will look at operational, system and people risk encountered by Wells Fargo and how they can be mitigated.
Operational Risk
As per
the Basel commission, operational risk is the peril associated with inadequate
or disastrous interior procedures, individuals or structure or from peripheral
occurrences (Perez, 2014). Operational risk is
expanded to incorporate legal risk. However, it is exceptional of strategic and
reputational risks.
Banks
experience operational risk in all their undertakings. Such risks may include
activities such as incorrect clearing of wrong financial documents and
incorrect stamping of an order in the transaction end. Operational risks are
vulnerable and occur in almost all the departments in the bank.
Causes
of Operational Risk
Exhausting
all the causes of operational risks is difficult (Perez, 2014).
However, it is possible to come up with a generalized approach to operational
risk. It is mostly a result of individuals, equipment, and procedure risk. At
times, people may become incompetent and misuse the power given to them by the
bank. They place the bank at a risk. Technological systems may also fail due to
activities such as hacking or program error. Such misfortunes may occur anytime
and can result in a loss to the bank. Errors in processes may also arise when
handling, conveying and repossessing data. It results in an inaccurate outcome
that exposes the bank to the risk of a loss.
Technology Risks
As a
bank, Wells Fargo has not been exceptional to technological risks. Just like
other banks, it has been exposed to the challenge of customer security
management. Over time, the bank has introduced online banking services and
communication. It has opened up space for the introduction of security related
challenges with criminals seeking to exploit the online banking sector.
Wells
Fargo has been a natural target due to its scope and the severity of customer data
and possessions. It has continued to experience malicious attacks that allow
for the creation of systems that provide data such as communication data. It
allows individuals to relay messages among themselves with a belief that they
are doing it to each other over a private and secure line. However, hackers may
intercept the communication system leading to sharing of critical information.
Peoples Risk
Individuals
operate bank systems and activities. Incompetency may lead to the exposure of a
bank to unwanted risks that may lead to financial and reputational loss to the
bank (Perez,
2014). The individuals may also misuse the powers
accorded to them by the bank.
Wells
Fargo has been exposed to people risk. At one time, the bank’s sales agents
opened accounts for customers without their consent. All this was aimed at
meeting the sales targets the set by the bank for its staff. They were opened
using unauthorized customer information and signatories. Such activities expose
the bank to the risk of fraudulent exercises. People may use them as an avenue
to carry out criminal activities such as money laundering. Upon its exposure,
the bank suffered reputational harm. The good public image of the bank had been
tainted.
Mitigating Risks
Operational
Risk
Wells
Fargo mitigates its operational risks by conducting a set of processes. They
include reporting, identification of the risk, control assessment, likelihood
and severity, monitoring, mitigation planning and execution (Perez, 2014). They are all aimed at ensuring all emerging risks are identified
and addressed.
Technology
Risk
Wells
Fargo has invested in technological security. It has adapted to the use of
malware which is a software aimed at damaging the systems that operate without
the consent of the owner. It ensures that no unwanted infiltration into the
system is allowed making communications secure.
Peoples
Risk
Wells
Fargo trains its staff on the best methods of operation. They are made to
understand the moral and professional requirements. They get to understand the
risk the bank is exposed to as a result of their misdoings.
Eradication of the Risks
It is
difficult to have a complete eradication of the risks. Individuals are always
prone to human error (Perez, 2014). Technology is always
changing. A secure system today may not be secure tomorrow. Banks need to
remain informed of the recent changes in technology to device systems that will
ensure they avoid emerging risks.
In
conclusion, banks cannot be risk-free. They will always be subject to attacks
from individuals and system with the intention of damaging their systems to
make money. It is up to the bank to ensure that its systems are secure.
Reference
Perez, S. (2014). What You Need to Know about Banking Risk.
Retrieved from https://beta.marketrealist.com/2014/09/must-know-thorough-look-defining-banking-risk
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