About Risk Assessment

Sector-specific Definitions of Risks

Sector-specific definitions of risks vary, but they typically denote the likelihood of unfavorable outcomes like loss, damage, or injury. Risk is characterized in financial terms as the possibility of receiving lesser returns from an investment than anticipated. In business, risk is typically avoided by taking proactive measures like doing a feasibility study to limit potential losses. Businesses and financial institutions are susceptible to a variety of financial hazards, including capital risk, reinvestment risk, operation risk, currency rate risk, and liquidity risk. Although these risks are not entirely avoidable, businesses utilize precautionary measures to avoid occurrence of this risk. This paper assesses the potential risks faced by Bank of America (BOA), how these risks affect the company to perform its functions.

Risks Faced by Bank of America (BOA)

The American banking sector faces many vulnerabilities and risks that can potentially deter its functioning. According to a report by the Department of Treasury, on national money laundering, the financial institutions in United States can potentially be involved in fraud, corruption or organized crimes cases (Department of Treasury, 2017). Bank of America faces a major risk of being exploited in money laundering for financing illegal activities. Innovation and technological advancement has come up with technological risks in financial transactions that could implicate the bank in legal battles or cause financial losses. The Bank of America also faces economic and political risks, for example the great recession in 2009.

Economic Risks and Cybercrime

Bank institutions such as the BOA constantly face economic risks such as interest rate risks that affect loan repayment and their ability to provide credit to their customers. The risk of cybercrime is a growing problem that is becoming more sophisticated and difficult to manage. According to the Security Scorecard R&D Department (2016), cyber theft has led to huge losses on financial institutions. By 2016, 75% of top commercial banks in United States were infected with malicious malware (Security Scorecard R&D Department, 2016).

References

Department of Treasury (2017). National Money Laundering Risk Assessment 2015. Retrieved from https://www.treasury.gov/resource-center/terrorist-illicit- finance/Documents/National%20Money%20Laundering%20Risk%20Assessment%20%

Security Scorecard R&D Department (2016). 2016 Financial Industry Cybersecurity Report. Retrieved from https://cdn2.hubspot.net/hubfs/533449/SecurityScorecard_2016_Financial_Report.pdf