Risk management Essay Example | Topics and Well Written Essays - 500 words - 1

Risk management - Essay Example Financial risk management provides the basis for managing assets and liabilities at banking level. For instance, it can be used to strengthen the capital position of a bank and help banks in predicting future risks etc. (DENNIS G. UYEMURA, et al., 1992). The fall of 2008 experienced intense financial crises which were significantly unique in nature as people and investors were not willing to trust banks in any manner. They were completely reluctant in lending or trading money with the major banks within the United States. There are several reasons for the overall financial crises including extensive borrowing, poor and investment decisions. However, the most substantial reason is that there was lack of transparency. People were unable to evaluate from the bank’s disclosures that whether or not a particular bank was going to thrive for the foreseeable future. At the same time the risk management strategies used by majority of the banks were not clear to the general public. Dane Holmes, the investor relations head at Goldman Sachs says that the general people, whose percentage is far more than intellectual investors, do not trust the big banks operating in the country due to the transparency factor which has finally led these b anks to a stage where they are facing extensive issues related to capital and investments (FRANK PARTNOY, et al., 2013). Goldman Sachs had acquired more than required liquid assets before the start of financial crisis in 2008. These assets were significantly hard to sell. However, their strategy proved beneficial for the bank as it faced minimum loss during the crisis. The assets included high yield debts, loans, stocks and bonds emerging in the financial market and the private equity investments. Consequently, the bank had $172 billion in the first four months of 2008 which made up for 14% of the total balance sheet amount.