Review of Financial Risk Management Techniques used by Banks and Financial Institutions
Keywords:
Neuromarketing, Consumer Decision-Making, Consumer Behavior, Neuroscience\, Emotional Marketing, Purchase Intention, EEG, fMRI, Eye-Tracking, Subconscious InfluenceAbstract
This survey paper reviews the financial risk management techniques employed by banks and financial institutions as they navigate challenging and volatile markets. It covers an analysis of credit, market, liquidity, operational and systemic risk and looks at how these institutions identify, measure, monitor and control them through existing frameworks and nascent technological advancements. Based on a review of literature, industry reports, and case studies it brings together both conventional methods like VaR, stress tests and Basel regulatory standards, along with innovative developments like AI-powered risk analytics and real-time monitoring systems. It presents the role and significance of sound risk management practices in ensuring financial stability and compliance with regulatory requirements.
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The outcomes of this research validate the belief that risk management is a fluid, multidimensional field which is an essential part of ensuring that institutions and banks can exist in the long term. Moving from basic risk control to advanced quantitative techniques and AI systems, demonstrates how far and complex markets and practices have become along with learning through painful experience. Whilst regulations, such as the Basel accords, have been an extremely beneficial and vital framework, the risk management framework must transcend mere compliance and become a true capability used for decision making through the organization.
Emerging technology holds huge potential for improving risk identification, measurement and mitigation but requires robust governance, transparency and human control to ensure that AI powered models do not become rogue and that institutions act in a responsible and ethical manner. Future changes will undoubtedly arise, such as the move towards digitisation, climate change, geopolitical instabilities, cyber security threats and continued regulatory change and the continued evolution of risk management systems will be key to an institution's survival in a turbulent environment.
Further primary research will be needed based on practitioners, regulators and boards so that the real-world difficulties are brought to light and how effectively current techniques are at present, as illustrated within this paper. By improving risk management continually, not only can financial institutions secure themselves against damaging events but also ensure they build and sustain the trust and confidence of stakeholders necessary for long-term survival and success.
