What is risk management? What is the relationship between risk management and capital management?

Risk management is the process of identifying, assessing, monitoring, and controlling risks that may negatively impact the achievement of an organization’s goals. The core goal of Risk Management is to minimize losses and maximize the outcomes within the organization.

Risk management usually includes the following tasks: (1) Risk Identification, (2) Risk Measurement, (3) Risk Mitigation, (4) Risk Pricing, (5) Risk Monitoring and Control

Relationship between Risk Management and Capital Management

(1) Risk management identifies and measures risks, while capital management determines how much capital the bank needs for those risks.

(2) Risk management focuses on controlling risks, while capital management focuses on maintaining adequate capital.

(3) Risk management helps determine the level of risk, while capital management uses that risk level to plan the required capital.

(4) Risk management manages the bank’s risks, while capital management ensures sufficient capital to support those risks.