Bank Risk Management Strategy Critical for Safety of Savings Accounts
March 04, 2010
What happens in Davos, Switzerland may seem far removed from the concerns of the "average" bank customer who needs to know that his or her investments are not going to disappear someday because a pack of greedy bankers took too much risk.
This year, though, at the Davos World Economic Forum meeting of economic experts and political bigwigs, the concerns of the conservative investor were a major topic of discussion.
And why not? There are millions of people who simply are not willing to put their money into bank accounts if those accounts are at risk of disappearing. In that sense, reassuring savers that their hard-earned money is safe in a bank deposit account may be the most important task of the bank community in 2010.
So, what are banks and bankers doing to decrease risk of loss in savings accounts, CDs, and money market accounts? Two main things:
1. Relying on Government Backing
The FDIC guarantees savings accounts, CDs, and money market accounts up to $250,000 per depositor per bank. That guarantee gives banks a lot of credibility.
Furthermore, the "too big to fail" doctrine, while under fire in the media, has certainly not been done away with. There is a general perception in the marketplace that if too many banks failed, endangering people's savings, the government would step in and save the day.
2. Reconsidering Risk Management
Meanwhile, bankers are reconsidering risk management practices, especially with respect to credit default swaps and other "Casino Capitalism"-style strategies. Many of the risk management ideas circulating in places like Davos are not new. But the attention being paid to them is much heightened.
