In this project we are going to talk about a major case and a minor case related to the risks that have a high probability in causing the banks to fail. The major case is a bout Petra Bank which was closed in the late 1980s. And the minor case is about a German bank (Heristate bank) which was closed in the early 1970s.
Methodology
We used our own analysis on the whole case based on the governmental public statements. Also, public statements from the organization which is Petra Bank. Moreover, we interviewed and investigated some of the employees who worked there. In addition, we extracted a questionnaire and distributed it to those employees to fully understand the reason why the bank got bankrupt. Reports from both parties (governmental…show more content… The lower this likelihood the higher is the soundness of a bank. (Greenspan 1998).
Literature review
Q) What are the causes that led to the collapse of Petra Bank, and what could’ve been done to prevent such causes for Petra bank and other banks in the future?
To start with we are going to provide you with several definitions of operational risk, liquidity risk, foreign exchange risk, market risk and political risk which were defined by committees, people and institutions.
1 Operational Risk
i. Operational Risk: - “The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events”. (BCBS,2001)
ii. Operational Risk: - “The risk of loss resulting from inadequate or failed processes or systems, human factors or external events”. (JP Morgan Chase)
2 Liquidity Risk
Liquidity Risk: - “The risk to an institutions financial condition or safety and soundness arising from its inability {weather real or perceived} to meet its contractual obligations. (BGFRS)
3 Credit Risk
Credit Risk: - the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed…show more content… And it was owned by group of business men. It went bankrupt on the 26th of June 1974. This incident was a very rare incident in the history of international finance. On the 26th of June 1974 the German central bank forced Herstatt bank into liquidation. Various banks had released payment of Deutsche Marks (DEM) to Herstatt in Frankfurt in exchange for US Dollars (USD) that were to be delivered in New York. Because of time zone differences, Herstatt ceased operations between the times of the respective payments. The counterparty banks did not receive their USD