Legal risk

Bank regulation and standards
Bank for International Settlements Basel Accords Basel I Basel II Basel III
Background
Banking (Regulation) Monetary policy Central bank Risk Risk management Regulatory capital Tier 1 Tier 2
Pillar 1: Regulatory capital
Credit risk Standardized IRB Approach F-IRB A-IRB PD LGD EAD Operational risk Basic Standardized AMA Market risk Duration Value at risk
Pillar 2: Supervisory review
Economic capital Liquidity risk Legal risk
Pillar 3: Market disclosure
Disclosure
Business and Economics Portal

Financial risk
Categories of

Credit risk
Concentration risk
Market risk
Interest rate risk Currency risk Equity risk Commodity risk
Liquidity risk
Refinancing risk
Operational risk
Country risk Legal risk Model risk Political risk Valuation risk
Reputational risk
Volatility risk
Settlement risk
Profit risk
Systemic risk

Basel II classified Legal risk as a subset of Operational Risk in 2003. There is no standard definition, but there are at least two primary/secondary definition sets in circulation.

Mcormick, R. 2004 Legal risk is the risk of loss to an institution which is primarily caused by:
(a) a defective transaction; or
(b) a claim (including a defense to a claim or a counterclaim) being made or some other event occurring which results in a liability for the institution or other loss (for example, as a result of the termination of a contract) or;
(c) failing to take appropriate measures to protect assets (for example, intellectual property) owned by the institution; or
(d) change in law.^[1]

Johnson and Swanson. 2007

The expenses of litigation of a company.^[2]

Whalley, M. 2012

The risk of financial or reputational loss arising from: regulatory or legal action; disputes for or against the company; failure to correctly document, enforce or adhere to contractual arrangements; inadequate management of non-contractual rights; or failure to meet non-contractual obligations.

Tsui TC. 2013

The cost and loss of income caused by legal uncertainty, multiplied by possibility of the individual event or legal environment as a whole.^[3]

One of the most obvious legal risks of doing business not mentioned in the above definitions is the risk of arrest and prosecution.

All definitions contain more detail.

References

↑ Roger McCormick. "Legal Risk in the Financial Markets", Oxford University Press
↑ IMA. "Issues". imanet.org.
↑ "Experience from the Anti-Monopoly Law Decision in China (Cost and Benefit of Rule of Law)". ssrn.com.

Financial risk and financial risk management

Categories

Credit risk	Concentration risk Consumer credit risk Credit derivative Securitization

Market risk	Commodity risk (e.g. Volume risk, Basis risk, Shape risk, Holding period risk, Price area risk) Equity risk FX risk Margining risk Interest rate risk Volatility risk Liquidity risk (e.g. Refinancing risk)

Operational risk	Operational risk management Legal risk Political risk Reputational risk Valuation risk

Other	Profit risk Settlement risk Systemic risk

Modeling

Market portfolio
Modern portfolio theory
RAROC
Risk-free rate
Risk parity
Sharpe ratio
Value-at-Risk (VaR) and extensions Profit at risk, Margin at risk, Liquidity at risk

Basic concepts

This article is issued from Wikipedia - version of the 4/10/2016. The text is available under the Creative Commons Attribution/Share Alike but additional terms may apply for the media files.