Risk Assessment on Banks under Rising Interest Rates

Abstract

This paper explores the critical role of the banking sector in the economy and society, with a focus on various risk dimensions affecting this industry. These dimensions include liquidity risk, credit risk, market risk, and systemic risk. The paper underscores the banking sector's significance for the national economy and financial stability, defining and explaining these risks' impact. The liquidity risk section delves into the definition, causes, and implications of liquidity risk, examining policies and measures taken by banks, especially in response to the challenges posed by the COVID-19 pandemic. Credit risk is explored through a case study of Credit Suisse, discussing the definition and consequences of credit risk and its potential role in bank bankruptcies. Market risk is analyzed with a focus on interest rate changes and their effects on banks, using the case of Silicon Valley Bank to illustrate how market risk can lead to bank failures. Systemic risk is explained, emphasizing its definition, causes, and significance to banks while also suggesting measures to avoid it. This paper concludes by summarizing the impact of these risks on the banking sector and offers recommendations for risk management and the future direction of the industry. Through case studies, it highlights the complexity of these risk dimensions and their crucial role in maintaining banking sector stability and overall economic well-being.