Introduction
Within the dynamic and well-diversified banking industry, managing risks is vital to achieving long-term professionalism, stability, and regulation compliance. One of the fundamental tasks of this paper will be to contrastively appraise the existing risk-oriented policies of the two best-known British banks, Barclays Bank UK and Standard Chartered Bank. While it is not easy for these institutions to identify and understand each risk, financial risks—credit, market, liquidity, operational, and reputational- are simultaneously continuous major challenges to them. Barclays Bank UK, a subsidiary of the huge and renowned Barclays Group, has established a robust framework in risk management through the monitoring and precision of the different major risk exposures across its diverse administrative responsibilities (Barclays et al., 2022). Besides, the bank has paid great attention to third-party risk management, operation resiliency, and data protection, showing the bank has full intentions to take care of stakeholders’ interests (Standard Chartered, 2024.). The paper, which is critical and comprehensive, will focus on aspects such as risk management strategies applied by different banks. Since there will be similarities and disparities, the paper will offer suggestions for further improvements to risk management strategies. In addition, the study will research whether these methods work to manage various risk types and share some ways that banks can prevent and manage the risks they face.
Overview of Barclays Bank UK’s Risk Management Strategies:
Background and overview
Barclays Bank UK PLC is a leading provider of banking services in the UK, representing a major branch of the global Barclays Group. Barclays in the United Kingdom is one of the oldest in the UK, with a history spanning over three centuries, and participates in such activities as retail banking, wealth management, and the sale of consumer credit cards (Barclays, 2024).
Risk management framework
Barclays UK has established an assertive risk management system to assess, measure, track, and manage the various types of uncertainty it faces. This framework aligns with the enterprise risk management framework that operates across the Barclays Group and intends to generate a culture of risk awareness throughout the organization (Barclays et al., 2022).
Strategies that focus on the management of the principal risks
- Credit risk management: The credit risk management of UK Barclays Bank uses advanced models of credit risk, stress tests, and portfolio monitoring to determine the possible direction of the credit risk assessment and the action needed. They follow the rules for equity provision and collateral management (Barclays et al., 2022).
- Market risk management: Barclays Bank UK undertakes risk management through Var models, stress testing, and sensitivity analysis. These institutions also produce carefully measured market risk limits and employ hedging tools to reduce exposure (Barclays, 2024).
- Operational risk management: Barclays Bank UK has executed a sound operational risk framework encompassing risk and control inventory, key indicators, and scenario analysis. Additionally, these strategies have well-developed business continuity and disaster recovery plans (Barclays Bank UK PLC 2022b).
Strengths and weaknesses
The bank’s well-developed risk modeling capabilities, well-functioning risk governance, and well-established risk culture at Barclays Bank UK will strengthen its position. While the bank maintained compliance via utilization of the internal audit and financial reporting mechanisms, it experienced seemingly uncontrollable conduct and reputational risks that led to multi-million settlements and fines in the past (Barclays, 2024).
Standard Chartered Bank
Background and overview
Standard Chartered Bank is a leading international banking group in the Asia Pacific, African, and Middle East subcontinental regions. With its London-based headquarters, the bank has a rich and long history dating back to 1853. It is present in over 60 countries and markets worldwide.
Risk management framework
Enacting a complex risk management structure, the bank uses a method to enumerate, measure, monitor, and control global risks. This framework is implemented with a strictly executed risk strategy and a strong governance pattern (Standard Chartered, 2022).
Addressing the principal risks
- Credit risk analysis: Standard Chartered adopts comprehensive credit risk analysis procedures such as financial ratio analysis, cash flow forecasting, and stress testing to assess the borrowers’ and other creditors’ abilities to pay back (Standard Chartered, 2024).
- Third-party risk management: The bank dedicates considerable resources to a scheduled risk management regimen (TRPM), including partner risk management, business continuity, and data protection. In this sense, this bank and its third partners take their duties seriously by maintaining a minimum level of continuity planning, crisis management, and cyber security measures (Standard Chartered, 2024).
- Sustainability and values framework: Standard Chartered has introduced a diversified sustainability system that concurrently runs with its responsibility branch. According to this setup, the bank declares its position and formulates policies on various ecological, social, and governance (ESG) issues.
- Strengths and weaknesses
The strengths of the company depend on its already-established risk governance, mature TPRM (third-party risk management) framework, and engagement in sustainability and ethics in its business (Altman and Narayanan, (1997). On the flip side, dealing with compliance risks, especially money laundering and sanctions violations, has proven to be one of the main problems that the bank faces; thus, several fines and penalties were slapped up (Financial Times, 2019).
Comparative Analysis
Risk management frameworks mirror each other across the globe and deviate.
It is worth noting that Barclays Bank UK and Standard Chartered Bank have established impeccable risk management frameworks to deal with several risk categories, including credit risk, market risk, operational risk, and compliance risk (Claessens et al., 2018). Nevertheless, both parties rely largely on differing strategies and techniques.
Effectiveness of risk management strategies for specific risk levels.
Regarding credit risk management, the two banks apply the most up-to-date computer modeling, stress testing procedures, and fixed lending rules (Caglio et al., 2016). However, Standard Chartered concentrated on sustainable investing more by publishing its position statements and ethical lending practices through the values framework (Standard Chartered, 2024).
As for market risk, Barclays Bank clearly embraces Value at Risk (Var) models and hedging techniques in its market risk mode management (Barclays, 2019). Standard Chartered’s market risk management strategies seem less clearly communicated in the publicly available information. Standard Chartered has a solidly defined framework for third-party risk management (TPRM) purposes to create a management process that corresponds to operational resilience and data protection while handling external counterparties (Standard Chartered, 2024). Such an issue is not as noticeable as in the case of Barclays Bank UK’s risk management technique.
Areas for improvement and adaptations.
Despite the two banks possessing sophisticated risk management frameworks, areas for improvement in resilience are still there. Besides, Barclays Bank UK needs a standard Chartered Bank by creating more robust procedures for taking risk management and sustainability into account. On the other hand, Standard Chartered could upgrade the quality of its market risk reporting and integrate more sophisticated modeling methods similar to those Barclays utilizes.
Conclusion
In summary, the risk management systems of Barclays Bank UK and Standard Chartered Bank are efficient and specific, adapted to the needs of each bank and its unique business activities and exposures. The similarities in their ways of managing credit and market risk exist, but Standard Chartered’s attention to three-party risk management and sustainability has only pushed the investment bank apart. Sharing expertise and dealing with potential weaknesses are essential elements of this bank’s risk management practice. They make these banks capable of long-term sustainable development for all stakeholders in an always-changing market.
References
Altman, E.I. and Narayanan, P. (1997) ‘Business Failure Classification Models: An International Survey’ In: Choi, F. (Ed.), International Accounting, 2nd ed. Wiley, New York
Barclays. (2024). Diversification explained. Barclays Smart Investor. https://www.barclays.co.uk/smart-investor/new-to-investing/reducing-unnecessary-risk/diversification-explained/
Caglio, C., Darst, R. M., & Parolin, E. (2016). A Look Under the Hood How Banks Use Credit Default Swaps (No. 2016-12-22-1). Board of Governors of the Federal Reserve System (US).
Claessens, S., Law, A., & Wang, T. (2018). How do credit ratings affect bank lending under capital constraints?.
Financial Times. (2019, April 9). Standard Chartered fined $1.1bn for sanctions violations. https://www.ft.com/content/df9fedc0-5ab4-11e9-939a-341f5ada9d40
Standard Chartered. (2022). Standard Chartered PLC 2022 Annual Report. https://av.sc.com/corp-en/content/docs/standard-chartered-annual-report-2022.pdf
Standard Chartered. (2024). Understanding credit risk analysis. https://www.sc.com/sg/wealth/insights/understanding-credit-risk-analysis/
Standard Chartered. (2024). Third party risk management. https://www.sc.com/en/about/third-party-risk-management/
Standard Chartered. (2024). Third party risk management. https://www.sc.com/en/about/third-party-risk-management/
Standard Chartered. (2024). Our position statements and values.
Standard Chartered. (2024). Our history. https://www.sc.com/en/about/our-history/
write