Major Risks in 2017

The top and emerging risks identified in the annual report of 2017 by the Royal Bank of Canada are as follows.

  • Global Uncertainty
  • Canadian Housing and Household Indebtedness
  • Information Technology & Cyber Risks
  • Regulatory Changes

Global Uncertainty

As the administration of US has been changing the advocate policy continuously regarding taxation and regulations in financial institutions and that of trade, there is an overall uncertainty around the globe. Moreover, Canada faces additional risks because of the negotiation going on between NAFTA and the government of US regarding tax reforms. The social, economic, and political impact of the negotiation is uncertain at the moment and the slowdown of China’s economy also concerns the company. This increases the risk for the bank as well.

Canadian Housing and Household Indebtedness

Another top concern for the Bank is the housing market of Canada. In Toronto and Vancouver, the housing prices are high and thus are not much affordable. Moreover, the increase in interest rate environment adds to the risk related to the Canadian housing market. Increase in indebtedness can impact the bank negatively as it would have negative credit implications for the portfolios of consumer lending.

Information Technology & Cyber Risks

Another key risk for the company as identified in the report is the cyber risk. It can be seen that the number of cyber-attacks has continued to increase recently and this imposes a high risk for the bank as in such situation, there will be disruption in the business day to day activities, there would be the risk of theft of customer’s private information and data, and in addition to this, there would be the damage of reputation of the bank as well.

Regulatory Changes

As the bank operates in multiple jurisdictions, the constant expansion of the regulations can lead to declining profitability for the bank. In addition to this, the financial reforms can have material impact on the bank as well. (Royal Bank of Canada 2017 Annual Report, 2017)

Part II: Liquidity risk management

The liquidity term can be used in multiple contexts. The liquidity of the assets can be used to evaluate that how easily, quickly and costly the assets can be converted into cash. The liquidity can also be described as the near cash assets and amount of cash kept by the company. If the company has more liquid assets, it can be stated that the liquidity of company is fairly higher.  For banking sector, the liquidity risk is prevalent as the bank can easily lose its liquidity due to the withdrawal of the cash or funds by customers when they intend.

The Royal Bank of Canada’s global asset management has hired head of liquidity and managing director who is utterly responsible for the product development and sales opportunities which are related to the institutional cash management strategies.

In addition to this, the first covered bond program was launched by Canadian issuer in November 2007, due to this act, the liquidity position of Royal Bank of Canada was enhanced and the bank was able to diversify its access to the wholesale funding…………………………..

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