- Regulation of banks — Credit risk — Investment business
This chapter studies risk, risk management, and internal controls. Risk denotes a set of potential outcomes assessed against a specific objective, such as market risk, liquidity risk, or operational risk. The concept of risk and risk management is intrinsic to the design of a firm’s governance system. The governance of a firm is commonly understood to refer to the system by which that firm is directed and controlled. In that context, the system by which a firm is controlled is referred to as ‘internal controls’. Risk management is part of the internal controls of a firm. The internal controls may be described as the framework of checks and balances that is embedded in the organisational structure that provide reasonable assurance regarding the achievement of the organisation’s objectives, both in terms of the execution of the business model and in reporting terms.
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