Introduction
The purpose of this assignment is to explore the importance of risk management within the banking industry, focusing mainly on Irelands second largest bank, Allied-Irish Bank (AIB). Risk implies exposure to uncertainty or threat (Kannan and Thangavel, 2008). It is anything that threatens or creates danger in an organisation. ‘Risk management is a journey... not a destination’, Knight (2010). In other words, risk management is the process of identifying current and future loss exposures faced by an organisation and the selection of appropriate techniques for treating these exposures. The classification of risk is; pure risk, speculative risk, or fundamental risk. Pure risk is where there are only adverse or neutral outcomes. Speculative risk is where there is either profit or loss and fundamental risk is one that affects an entire economy or a large group. Therefore, we can deduce that risk…show more content… This statement is true when it comes to discussing AIB’s international fraud investigation in 2002 involving $750m. The scale and nature of the losses made AIB’s story one of the biggest ‘rogue trader’ scandals since 1995. It was concluded that a foreign currency dealer, John Rusnak, had systematically falsified bank records and documents, and was able to circumvent the “weak control environment”. This event occurred as a result of poor risk management. After investigation, it was reported that AIB had a lack of clear reporting lines, inadequate supervision of employees and failure to control fully the business that an overseas office was engaged in. To correct its flaws in risk management, AIB learned that proprietary trading is a high-risk activity, risk management architecture is crucial and the relationship between a parent company and overseas units need to be clear. Appropriate measures were taken resulting in AIB having efficient risk