Question

Why do banks innovate and maintain an appetite for risk and what some of the factors that contribute to the innovation process

response should be no less than 350 words and it should have references and citations.

Answer 1

Innovation means something new or something that hadn't already been done. The same applies to the banking section too. There are several parts of banks of recent past that are going through or have been through innovation. They 're no longer restricted to old (traditional) methods. Thus, creativity resorts to rising business avenues and catching the new market banks. This word is being used a lot nowadays for creative banking.

In the last few years mobile banking has become a revolution. It has totally changed the dynamics of banking systems. It is thus a device that enables customers to conduct several types of financial-related services through a smartphone. Services such as ATM locations, bill payment alert, inter or intrabank payments, bill payments, and much more. Therefore resources are available at any person's disposal.

Internet coverage has increased dramatically in the last few years. This service is cloud banking, electronic banking, or virtual banking. Thus, this banking service allows its users to conduct and conduct every financial transaction or operation using the Internet. The banking facilities are traditionally provided at a local bank outlet. Narrow banking includes keeping the larger portion of deposits together in risk-free assets such as government securities. In India, to reduce the size of the NPAs this is basically in performance. While the business, investment, insurance, and many other financial activities combine to form universal banking. Thus any product is available in this work.

The banking climate of today poses unparalleled challenges in managing risk effectively and creating a forum for achieving stable and sustainable returns. With the exception of the recent banking crisis, bankers have been able to effectively sense and respond to the risks inherent in their business even during stressed economies. Certainly, there have been notable instances in which banking organizations did not sufficiently identify or effectively respond to the risks at hand

Risk appetite is that list of identifiable risks an organization is willing to take. For banks, most of these are usually predefined-credit, interest rate, liquidity, financial, regulatory, strategic, and reputational. It is through the successful management of these risks that banks produce adequate margins of interest, collect fee income and sustain reasonable level of non-interest costs.

The modern economy also poses several big challenges in developing observable levels of risk tolerance. Danger metrics in the industry can no longer be measured against conventional benchmark standards. Perhaps the most important of these risk measures are interest rate premiums, the appropriateness of the loan loss allowance, operating performance and capital rates. Historically, the most experienced bank risk managers have assessed targeted rates and business risk tolerance according to credible industry standards.

Reference- Economic Times