Credit Risk Models in Financial Institutions Essay

Credit Risk Models in Financial Institutions - Essay Example The most critical factor that affects the 3Cs of a bank is 'Credit Risk'. Banking is a domain where 'risk-free' activity is an unknown concept. Particularly in the field of credit appraisal, risk is associated with every decision made by the portfolio analyst. Although it is not possible to wipe out risk altogether, it can be reduced to a manageable level. Stated simply, 'zero-risk' situation is impossible to be achieved in banking. There have been considerable discussions regarding the role of the portfolio analysts and credit officers in banks. It has been noted that in several cases, officers are forced to 'take' a decision rather than 'making' a decision due to the lack of freedom to analyze and make a decision based on the merits of the case. There are two ways of reaching to a decision; subjective and objective. A subjective decision is based on the impression the bank has about the counterparty. Although this method has a substantial role to play in the decision making process, an objective analysis instils a certain degree of integrity, security and refinement. Credit Risk Management is an activity of paramount importance for any bank. Effective risk management increases the stakeholder value by providing for 'value creation', 'value preservation' and 'capital optimization'. Credit Risk Modelling is the first step towards implementing a robust risk mitigation environment. Credit risk models are intended to aid banks in quantifying, aggregating and managing risk across geographical and product lines (BIS, 1999). The pith of the report will cover various aspects of credit risk modelling such as 'techniques to measure risk', 'building an assessment model' and the various prevalent credit risk models being used world wide. In the process the report also throws light on subjects such as banking risks and credit risk parameters. What is Credit Risk Risk taking is a synonymous with credit appraisal. Risk taking is not an activity that takes place by chance; rather it is a deliberate action in the process of financial decision making. Risk is a factor, which, if it takes effect, produces undesirable outcomes for the bank. Bhargava (Bhargava, 2000) presents an insightful pie chart describing the main financial risks that are prevalent in the banking industry. Figure: Pie Chart showing the proportion of Financial Risks (Bhargava, 2000) It can be clearly seen that Credit Risks occupy a major portion of the pie and a bane for most bankers across the world. Risk Management Group of the Basel Committee on Banking Supervision defines credit risk as "potential that a borrower or counterparty of a financial institution will fail to meet the obligations in accordance with the agreed terms" (bcbs54, 2000). In other words, the probability that the receiver of the loan will not pay back in full, within the specified time frame, the complete repayment amount {including any interest and service charge} is called credit risk. Lack of appropriate lending discipline and inadequate system of control generally results in setbacks to banks. Several major banks such as Enron have collapsed due to poor transaction management, incomplete credit information and

Impact of service quality on customer satisfaction and customer Dissertation

Impact of service quality on customer satisfaction and customer loyalty an application on the banking sector - Dissertation Example With the aim to evaluate the impact of service quality and customer satisfaction on customer loyalty, three objectives were set in Chapter I. Based on a qualitative approach, only secondary data has been used for this study. With customer loyalty as the dependent variable, three independent variables – perceived value, service quality and customer experience have been considered in this study. The study finds that certain dimensions of service quality directly impact customer loyalty - reliability, empathy, responsiveness and assurance. Staff training is thus of importance in delivering quality training to evoke such feelings in customers. In the service economy the relationship between service quality and customer experience has gained immense importance. Customers base their future decisions on the ‘moment of truth’ and hence staging and designing an experience has become an important tool to gain competitive advantage in the banking sector. Banks need to unders tand individual customer needs and personalize service. Perceived value enhances customer satisfaction and this leads to enhanced customer loyalty. Customers evaluate the benefits they receive against the costs they pay for such services. Thus Perceived value in the banking sector independently impacts customer satisfaction leading to customer loyalty. ... 1.4 Conceptual framework 4 1.5 Structure of the Study 6 1.6 Scope of the Study 6 Chapter II Literature Review 2.1 Chapter Overview 7 2.2 Definitions 2.2.1 Service Quality 7 2.2.2 Customer Satisfaction and Customer Experience 8 2.2.3 Customer-perceived Value 9 2.2.4 Customer Loyalty 10 2.3 Dimensions and perceptions of service quality 2.3.1 Dimensions of Service Quality 10 2.3.2 The Gap Model 11 2.3.3 Perceptions of Service Quality 12 2.3.4 Summary 15 2.4 Service Quality and Customer Loyalty 16 2.5 Service Quality and Customer Experience 19 2.6 Perceived Value on Customer Satisfaction and Customer Loyalty 22 Chapter III Methodology 3.1 Research Philosophy 23 3.2 Research Design 23 3.3 Research Methodology 23 3.4 Choice of Method 24 3.5 Data Collection 25 3.6 Sources of data 25 3.7 Justification for Literature Review 25 3.8 Data Analysis 26 3.9 Ethical Concerns 26 Chapter IV Findings and Discussion 4.1 The Banking Industry 27 4.2 Service Quality and Customer Loyalty 27 4.3 Service Qual ity and Customer Experience 29 4.4 Perceived Value on Customer Satisfaction and Customer Loyalty 31 4.5 Discussion 33 Chapter V Conclusion and Recommendation 5.1 Conclusion 36 5.2 Recommendations to enhance customer loyalty 37 5.3 Limitations of the Study 37 5.4 Recommendations for further research 37 5.5 Personal Reflections 39 References 40 Figures Figure I Framework for the Study 5 Figure II Customer Experience and Service Quality 30 Chapter I Introduction 1.1 Background In an intensely competitive business environment, sustainable competitive advantage has become imperative. The service industry has been forced to create new ways of finding competitive advantage (Chen & Hu, 2012). Retaining customers is considered to be more important than creating new customers. Retaining existing

Unifying Forces in East Asia and the role that Versailles Conference Essay

Unifying Forces in East Asia and the role that Versailles Conference played in the development of Asian nationalism - Essay Example In addition, its proximity in terms of geographical outlook has enabled it access its goods and services with a lot of ease. This is a sign of unity that is deeply rooted in the entire region of East Asia in terms of bringing new inventions and technological advancements, receiving information, and letting it be in a constant unity with its neighboring economies thorough getting involved in direct investments. As a result, it has been seen how a long-established flying geese, a form of monetary relations between Japan and East Asia, has ended up as a unifying factor of regionalization. East Asian Culture is further noted as a unifying factor. In this, one sees how common orientation Confucianism and, on the other hand, Buddhism are a unifying force amongst them. Other sub expanses within the East Asian communalities are deeply rooted in linguistic similarity as well as ethnic ties that join them together. Northern China, Southern Korea, Southern China, Taiwan, and Hong Kong amongst o ther East Asian countries have all embraced ethnicity as a unifying factor. They have a logic regional consciousness, mutual interest, identity and common destiny existing amongst them. These are amongst the unifying forces that have immensely tried to unify the entire East Asian communities. However, according to Calder (134-157), this is never the case between US and Japan, as he thinks that the relationship between the countries is deteriorating as they quest for global ambitions. Additionally, these communities have constructed a more articulate Pacific Regional identity, something that has been so significant in improving unity amongst the East Asian states. In another new look, development of Asian nationalisms was greatly influenced by Versailles Conference, a peace conference that was held in 1919. This conference took place after the war, and it had to bring peace within the Asian territory as well as rebuild nationalism at the same time. The peace conference united a number of countries in Asia after the First World War that has separated so many of them. It is imperative to understand that not all countries in Asia embraced the Versailles Conference. In fact, China as a country did not sign the Versailles Treaty but rather preferred walking out of the plan because of its grievances and betrayal that it felt. China was involved in anti-Japanese protest and finally left the Versailles Treaty. Versailles treaty had a greater role in Asian nationalism. For instance, after Japan had succeeded in leading most of Asian undertakings, this peace treaty brought about unity that had long been dreamt of. Asia as a nation had been deprived of personal ruling at the continent because of the influence and authority of power that the powerful Western countries inflicted on them. Step by step, through this treaty, a great unity was implemented. It is after this treaty that a stream of new ideologies including missionary based assistance came into place. In order to achieve a great nationalism in Asia, the people had to embrace new ideas that could assist their economy and education to rise to the required standard. The Versailles Treaty itself had provisions that for sure enabled Asia to rise and recover their nationalism. For instance, Germany, which is regarded as a colonial power, had responsibilities to undertake after The First World War. It had to respect the independence of Australia and other countries while at the same time surrendering its rights and entitlement over other

Comparing Destruction in Steinbecks Flight and Londons To Build a Fir

Journey to Destruction in Steinbeck's Flight and London's To Build a Fire Not many people have to face death in the cold wasteland of the Arctic or rugged mountains of California, but Pepe and "the man" do. Although the ironic destruction of Pepe and the man were caused by relentless forces of nature, their attitudes and reasons for going on their journeys differed. The setting in both stories consisted of extreme climate and conditions. In Flight the climate was desert hot during the day and chilling cold at night. "The Torres family had their farm, a few sloping acres above a cliff that dropped to the brown reefs and to the hissing white waters of the ocean. Behind the farm the stone mountains stood up against the sky." Pepe spent his last days in the mountains where the conditions were harsh. "His throat was almost closed with thirst. He crawled into the heavy brush feeling with his fingers for water. "There was no water in the bed of the stream, only damp earth." In contrast, the climate in "To Build a Fire" was frigidly cold. "Day had broken cold and gray, ...

How far was the growth of the American economy in the years 1890 to 1914 due to the rise of big business? Essay

During the period 1890 to 1914 the American economy grew considerably due to the growth of its capacity to produce, rapid industrialisation and increased domestic consumption. This was, to a large extent, driven by big business. Oil was more readily available which made the transport of goods easier and encouraged development of machinery and industry. Through the dominance of Rockefeller and large oil companies, oil was exploited to the benefit of everyone and especially the embryonic car industry. In 1913, Henry Ford, adopted the moving assembly line, which meant that cars could be produced quickly which made them more affordable and increased sales boosting the economy. Through the work of the steel magnate Carnegie, steel became more readily available due to mass production which supported the development of heavy engineering and production which provided employment. JP Morgan had a leading role in reorganising American railroads which made transport of goods easier and cheaper. Due to ruthless big business culture, smaller companies which were less profitable could not survive, but the economy benefited from streamlined monopolies due to economy of scale. This meant that prices of goods went down and this spurred on the domestic market to buy more. By strictly controlling costs and increasing efficiency, big business moguls such as Vanderbilt, Rockefeller and Carnegie were particularly influential in this respect. In support of the economy banking became more stabilized due to financiers such as JP Morgan who directed the banking coalition that stopped the panic of 1907. This financial crisis almost crippled the American economy due to mass bank closures and major New York banks were on the verge of bankruptcy. The consequence of the intervention of JP Morgan was that banks were then able to provide credit to finance businesses and industry which boosted the American economy. Big business had considerable political influence and exerted pressure on the  government and states consequently passed laws to help big business. The government even extended protection through the Supreme Court such as keeping trade unions weak via super injunctions and the 14th amendment. This enshrined the rights and privileges of the individual, which allowed the development of a laissez-faire business culture. There were however a number of factors which supported the economy which were not directly related to big business. The development of agriculture across the Plains resulted in the cultivation of more land. Technological innovations such as barbed wire helped in this respect because land could be better protected. Innovations such as higher-yielding hybrid wheat made farming much more productive and profitable; this resulted in America becoming a ‘bread basket’ with surplus wheat for export. Likewise the development of technology such as refrigeration was important to farming and the economy. The development of the refrigerated rail car allowed perishable produce to be transported all across America. However, undoubtedly big business helped to fund and channel innovation into even greater profitability. Cheap labour, resulting from immigration, was particularly important to developing the economy and also brought additional skills to the country. As productivity increased trade with Asia created additional markets and demands for products. Indirectly advertising was another area that helped the American economy. Full page adverts in newspapers both in the USA and the rest of the world made people want products and therefore boosted sales and profits. Also the door-to-door salesman developed in this period as new products arrived fuelled demand. In conclusion big business was clearly extremely important in developing the American economy from 1890 to 1914 but many factors interrelate and arguably the government creating a capitalist free market economy through the political influence of big business was a major factor in helping businesses and the economy to grow.

Happy Wife, Happy Life - 1627 Words

Happy Wife, Happy Life Independence and freedom are some of the greatest qualities for which many races, nationalities, and genders have been able to thank America for. It took several centuries for our country to be at the forefront of equality, while most nations have only recently started to develop this type of thinking in their culture. However, America was not always this way. At the beginning of the 20th century, women held very few roles within society. With the husbands traditionally being the sole income earners during this time, the wives were left with the expectation to stay at home, raise the children and keep the house in order. As a result, women had an insufficient amount of time and focused little if any amount of such time on themselves, while the husbands did not help with any of the â€Å"women’s work.† With high expectations and undoubtedly little reward for their hard work at home, women often found themselves feeling trapped and forced to lead an unfulfilling lifestyle . Yearning for a sense of self, there were luxuries which these women were not allowed to indulge in, as they were not allowed a sense of freedom apart from their husbands. Furthermore, these wives and mothers would fantasize about a time where they could and would be free, to indulge and take part in niceties, even if it was only to go buy a pair of silk stockings. For over two hundred years in America, women did not have a place in literature, both as major characters and as writers. 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Background and Impact of The Civil Rights Act of 1964

The fight against racial injustice did not end after the passage of the  Civil Rights Act of 1964, but the law did allow activists to meet their major goals. The legislation came to be after President Lyndon B. Johnson asked Congress to pass a comprehensive civil rights bill. President John F. Kennedy had proposed such a bill in June of 1963, mere months before his death, and Johnson used Kennedys memory to convince Americans that the time had come to address the problem of segregation. Background of the Civil Rights Act After the end of Reconstruction, white Southerners regained political power and set about reordering race relations. Sharecropping became the compromise that ruled the Southern economy, and a number of African-Americans moved to Southern cities, leaving farm life behind. As the black population in Southern cities grew, whites began passing restrictive segregation laws, demarcating urban spaces along racial lines. This new racial order -- eventually nicknamed the Jim Crow era -- did not go unchallenged. One notable court case that resulted from the new laws ended up before the Supreme Court in 1896, Plessy v. Ferguson. Homer Plessy was a 30-year-old shoemaker in June of 1892 when he decided to take on Louisianas Separate Car Act, delineating separate train cars for white and black passengers. Plessys act was a deliberate decision to challenge the legality of the new law. Plessy was racially mixed--seven-eighths white--and his very presence on the whites-only car threw into question the one-drop rule, the strict black-or-white definition of race of the late 19th-century U.S. When Plessys case went before the Supreme Court, the justices decided that Louisianas Separate Car Act was constitutional by a vote of 7 to 1. As long as separate facilities for blacks and whites were equal-- separate but equal -- Jim Crow laws did not violate the Constitution. Up until 1954, the U.S. civil rights movement challenged Jim Crow laws in the courts based on facilities not being equal, but that strategy changed with Brown v. Board of Education of Topeka (1954) when Thurgood Marshall argued that separate facilities were inherently unequal. And then came the Montgomery Bus Boycott in 1955, the sit-ins of 1960 and the Freedom Rides of 1961. As more and more African-American activists risked their lives to expose the harshness of Southern racial law and order in the wake of the Brown decision, the federal government, including the president, could no longer ignore segregation. The Civil Rights Act Five days after Kennedys assassination, Johnson announced his intention to push through a civil rights bill: We have talked long enough in this country about equal rights. We have talked for 100 years or more. It is time now to write the next chapter, and to write it in the books of law. Using his personal power in the Congress to get the needed votes, Johnson secured its passage and signed it into law in July 1964. The first paragraph of the act states as its purpose To enforce the constitutional right to vote, to confer jurisdiction upon the district courts of the United States to provide injunctive relief against discrimination in public accommodations, to authorize the Attorney General to institute suits to protect constitutional rights in public facilities and public education, to extend the Commission on Civil Rights, to prevent discrimination in federally assisted programs, to establish a Commission on Equal Employment Opportunity, and for other purposes. The bill prohibited racial discrimination in public and outlawed discrimination in places of employment. To this end, the act created the Equal Employment Opportunity Commission to investigate complaints of discrimination. The act ended the piecemeal strategy of integration by ending Jim Crow once and for all. The Impact of the Law The Civil Rights Act of 1964 did not end the civil rights movement, of course. White Southerners still used legal and extralegal means to deprive black Southerners of their constitutional rights. And in the North, de facto segregation meant that often African-Americans lived in the worst urban neighborhoods and had to attend the worst urban schools.  But because the act took a forceful stand  for civil rights, it ushered in a new era in which Americans could seek legal redress for civil rights violations. The act not only led the way for the Voting Rights Act of 1965 but also paved the way for programs like affirmative action.