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Risk Appetite/Risk Tolerance & Limit Setting

Boards and their committees must establish risk appetites and tolerances and set expectations for management in taking and managing credit risk. Simply defined, risk appetite, risk tolerance, and risk limits are the boundaries of risk that the board is willing to accept. Both regulators and industry observers have noted that excessive concentrations (high yield government bonds for instance) and undisciplined credit contributed to the most serious banking problems in recent years.

We evaluate, advise and assist in the development of risk appetites, tolerances, and concentration limit structures. We assist our clients by evaluating and benchmarking their quantitative and qualitative risk appetite and tolerances, as well as their limit structures, relative to sound industry standards and regulatory expectations, while taking into account the clients’ business strategies. Credit risk concentrations are measured by the same credit risk parameters that determine the capital needs, this way aligning business strategies and capital strategies.

Our approach ensures that recommendations are consistent with our clients’ business and financial strategies and risk culture.

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