ON ANALYSIS AND CONTROL OF FINANCIAL RISKS AND A VIEW OF TURKISH AND EUROPEAN BANKS AND FINANCIAL MARKETS

Year 2005, , 129 - 140, 28.12.2005

M. Hasan Eken

https://doi.org/10.29228/mjes.214

Abstract

In this paper, four main financial risks that banks get exposed to in
functioning as intermediary institutions are analysed and decomposed into
their components. After that the two components of these risks namely;
volatility and sensitivity, are calculated for both Turkish and European
Union commercial banks in aggregates. Volatility is the exogenous
component of risk and hence it is out of control of banks. Volatility can
partly be controlled by the governments. On the other hand sensitivity is
calculated as using banks' balance sheet figures. Thus, it is under the
control of banks and it can be managed by them.

Keywords

xx

ON ANALYSIS AND CONTROL OF FINANCIAL RISKS AND A VIEW OF TURKISH AND EUROPEAN BANKS AND FINANCIAL MARKETS

Abstract

In this paper, four main financial risks that banks get exposed to in functioning as intermediary institutions are analysed and decomposed into their components. After that the two components of these risks namely; volatility and sensitivity, are calculated for both Turkish and European Union commercial banks in aggregates. Volatility is the exogenous component of risk and hence it is out of control of banks. Volatility can partly be controlled by the governments. On the other hand sensitivity is calculated as using banks' balance sheet figures. Thus, it is under the control of banks and it can be managed by them. 

Keywords

ANALYSIS, CONTROL, FINANCIAL

References

• Baker, J.V., October 1978, Asset-Liability Management, Part 5: A Model ofALM Policy, Banking, V.70, P. 82-88.
• Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework, BIS Web Site.
• Bessis, J., 1998, Risk Management in Banking, First Edition, John Wiley and Sons, West Sussex, England.
• Bierwag, G.O. and Kaufman, G.G., 1977, Coping with the Risk of Interest Rate Fluctuations: A Note, Journal of Business, V.50, P.364-370.
• Bierwag, G.O., Kaufman, G.G. and Toevs, A., 1983, Immunization Strategies for Funding Multiple Liabilities, Journal of Financial and Quantitative Analysis, V .18, N .1, P.113-124.
• Binder, B.F., December 1980, Asset/Liability Management Part 2: Management and Control of Rate Sensitivity, Magazine of Bank Administration, V.56, P.31-35.
• Eken, M.H., 1992, Asset/Liability Management (ALM) in Commercial Banks: Models, Tools, Applications, A Comparative Case Study: The U.K. and Turkey, Unpublished Master Thesis, The University of Exeter, U.K..
• Eken, M.H., Oct. 1992, Bankalarda Aktif-Pasif Yonetimi,Bankacllar, No:lO, P. 48-51.
• Eken, M.H., 1994, Enflasyonun Bankaciltk Uzerine Etkilerinin Risk ve Karhhk A<;tsmdan Degerlendirilmesi, Tiirkiye Bankalar Birligi, Yaym No: 187.
• Glavin, W.M., 1982, Asset-Liability Management: A Handbook for Commercial Banks, Bank Administration Institute, Rolling Meadows, Illinois, U.S.A.
• Van Greuning, H. and Bratanovic, S.B., 2000, Analysizn Banking Risk; A Framework for Assessing Corporate Governance and Financial Risk Management, The World Bank, Washington D.C.
• Hempel, G.H., Coleman, A.B. and Simonson, D.G., 1990, Bank Management: Text and Cases, Third Edition, John Wiley and Sons Inc., U.S.A.
• Kaufman, G.G., Summer 1984, Measuring and Managing Interest Rate Risk: A Primer, Economic Perspectives, Federal Reserve Bank of Chicago, P.16-29.
• Simonson, D.G. and Hempel, G.H., Summer 1982, Improving Gap Management for Controlling Interest Rate Risk, Journal of Banking Research, P.109-115.
• Sinkey, J.F.Jr., 1989, Commercial Bank Financial Management in the Financial Services Industry, Third Edition, MacMillan Publishing Company, U.S.A..
• Stigum, M.L. and Branch, R.O., 1983, Managing Bank Assets and Liabilities; Strategies for Risk Control and Profit, First Edition, Dow Jones-Irwin, U.S.A..
• Toevs, A.L., Spring 1983, Gap Management: Managing Interest Rate Risk in Banks and Thrifts, Economic Review, Federal Reserve Bank of San Francisco, P.20-35.
• Toevs, A.L., 1986, Uses of Duration Analysis for the Control of Interest Rate Risk, in Platt, R.B., 1986, Controlling Interest Rate Risk: New Techniques and Applications for Money Management, First Edition, John Wiley and Sons, U.S.A.
• Turkish Banking Act No:4389.