In business, we often interpret profit as a reward for risk bearing. It is even truer in banking and financial service industry, as every business taken by this industry involves risk. In order to deliver value to their shareholders, customers, employees, and other stakeholders, banks must understand and manage the risks on a consistent basis.
Managing risk in present day banking, is a complex task. We can accomplish any complex task effectively through development of a model.
A statistical model, typically involves mathematical equations, functions and variables. A model is generally implemented to simplify a complex problem with the help of computer program. In risk management, banks apply models depending upon their size and business complexity.
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