Credit risk is the inability of customers to fulfill the obligation to pay back. Market risk is the fluctuation in asset values caused by changes in market prices and yields. Liquidity risk is an inability to accommodate the maturing obligations and withdrawals as well as asset growth and financing to meet obligations at a reasonable market price. Operational risk is the potential losses and incidents involving people, processes, technology, legal issues, external events, compliance, or reputation.

To assess risks, in a risks of bank is discussed and assessed at the Board of Commissioners and the Board of Director level using a comprehensive committee structure, which described the Business Risk Management and Governance at the Bank.

Here is an example of how a bank arrange committee involved in risk management. The committee consists of:

1. Risk Management Committee
2. Risk Committee and Credit Policy
3. Asset and Liability Committee
4. Market Risk Committee
5. Operational Risk Committee and Information

Risk Management Committee
This Committee meets at least three months to determine and analyze the level of risk associated with bank business, existing business opportunities and bank capital adequacy. Decisions of this committee was poured into operational policies and guidelines for all levels of the organization.

The task of this Risk Management Committee is to undertake a review of:
1. Framework and risk management governance
2. Direction, strategy and risk management programs
3. Risk profile and capital adequacy analysis
4. Policies and implementation of risk management
5. Risk management measurement methodologies
6. Emergency plans (Contingency Plan)
7. Adequacy of backup deletion

To assist the committee’s role, then the control and inspection carried out independently of the operational aspects of the bank by the internal audit by the Comptroller chaired.

Risk Committee and Credit Policy
Credit risk here is intended as the inability of debtors to repay their obligations to the Bank. Credit risk is managed by the study on:
1. Credit and portfolio diversification (business segment / sector
industrial / debtor);
2. Credit policies and procedures;
3. The adequacy of backup removal;
4. Determination of indicators credit risk profiles and credit risk measurement methods

Asset and Liability Committee (ALCO)
Liquidity management involved in Bank activities in maintaining the various of financing capacity, current assets and other cash resources to accommodate fluctuations in the level of assets and liabilities resulting from business disruption or unanticipated events. Banks manage liquidity risk at several levels of the Division of Finance, Accounting and Planning to formulate strategies that liquidity and interest rates, Treasury Division manage liquidity and interest rates are operational and ALCO committees oversee the position and condition of bank balance sheets compared to market conditions and in meeting monthly to determine the optimal strategy for managing these risks.

ALCO focused on the amount of current assets, the Bank’s ability to raise funds from the interbank money market, bank financing structure, maturity of assets and liabilities, interest rates and market trends, adequacy of future funding and macro economic conditions.

Market Risk Committee
Market risk is the potential losses caused by changes in market prices and yields. Market risk is closely linked to customer bank loans, deposits, trading activity, securities and derivative products. Market risk is managed within the overall limits and risks using hedging techniques. All the trading activity in relation to foreign exchange, derivatives, money markets and securities monitored every day and studied with mark-to-market basis within the limits set by the Market Risk Committee.

Operational Risk Committee and Information
Operational risk is the potential losses caused by an event that involves people, the failure of process, technology, legal issues, external events, compliance regulations and so forth. Under the Bank’s governance structure, each business unit is responsible for the risks that occur in the operational activities of daily with reference to the policies and procedures, control and routine monitoring. In addition, the bank’s risk profile and the overall internal control system has been developed and monitored by the Operational Risk Committee and the Information, which focuses attention on the operational risks associated with product development, systems, human resources and the principle of ‘know your customer’ as an aspect of prevention against the possibility of fraud and malpractice.

Audit Control
In addition to the system and risk management committee, the Bank has formed a special function in it intern control system. Bank Audit Committee to review the role of each Bank’s operational activities. Internal audit independently carry out assessments in all areas and business units systematically, to discuss control issues, adequacy of policies and procedures, adherence to central bank regulations and internal rules and the effectiveness of supervision and management structure.

Various events in the world has an important contribution to the evolution of risk management, ranging from World War I and II, Great Depression, terrorist attacks, the Asian crisis, Enron and WorldCom scandals, Madoff scandals, until the latest of the global economic crisis that resulted in the fall Lehman Brothers.

People have always tried to learn from experience. The experience provides a valuable lesson so that we do not fall on the same mistake again. Likewise happened to risk management. We tried to minimize the risk with manage it. If it still leaks, then the risk management system repair, and so on.

The crisis this time one of them caused by poorly functioning of risk management in various areas, which resulted in a complex crisis, and have significant impact on people around the world. Starting from granting debt far exceeds the ability to pay, rating agencies which published the rating overstated, the financial institutions are not aware of exposure to derivative products, and a series of other errors.

A number of experts from Wharton assume that too many people who blame risk management models, but it approaches should be corrected. Recommendations from them in order to make risk management more effective.

A comprehensive perspective of risk
Companies must have a broader picture of the risk, not only by risk alone. The trend is happening right now is to sort out the operational risk, market risk, liquidity risk, credit risk, and so on. And, in fact these risks linked to each other, so that without a comprehensive understanding of the risks the company can result from exposure to a big problem.

Risk Management 2.0
If the risk management 1.0 view of how the condition or the company’s current investment and analyze the potential risks occur, it is different with risk management 2.0. Risk management 2.0 is not only focused on risk analysis can provide a direct impact on the company, but furthermore the indirect impact.

Indirect impacts analyzed are potentially affected suppliers or business partners own the company. The more a company depends on a single supplier / business partner, the more strongly the importance to analyze the risks faced by suppliers / business partners. This is because if there is unwanted interference in their then potentially disrupt the company’s business also.

Challenge Assumptions
Form a team consisting of people with the best knowledge, who have foresight and challenging assumptions about the future. This team next task is to explain the risks and events that may occur in the future, which previously had been unthinkable.
To do this, there is now also have a variety of advanced technologies and software that is used to identify risks, such as technology, track and trace, SAP and others.

Complete Quantitative Data with Qualitative
In general, the measurement of risk to produce quantitative data. However, quantitative data is necessary also equipped with qualitative data, in order of business at a more comprehensive risk. Qualitative data can be obtained through benchmarking, judgment, until the discussion other companies, regulators, suppliers, governments, customers, to employees. Thus, we can gain insight about the risks involved and previously unthinkable.

Risk Considerations Many times
Consideration of risk is not enough just to be done once, but done in several stages during the business operation, starting from the stage of strategic planning, budgeting, and so on. Risk is also important to be discussed in more depth periodically, or when there is a big change, a potentially greater impact.

But fraud and misconduct would not occur only on the financial crisis alone, but whenever there is an opportunity for. During the control is still lacking, then the perpetrators of fraud will be able to find a gap to do what he wants. Therefore, companies need to implement strong controls. Fraud Risk Management is the solution.

Fraud Risk Management can be divided into 3 categories, namely:
1. Prevention, is control measures intended to reduce the risk of fraud and misconduct actually occurred.
• conduct assessment of the risks of fraud and misconduct that potentially occur
• set a code of conduct, such as a rule of behavior is acceptable in the organization, and other standard
• conduct due diligence in hiring employees, selecting vendors, and related third parties.
• provide training and communication related to the employee fraud and misconduct

2. Detection, is actions designed to uncover the fraud and misconduct
• the existence and mechanism of whistleblowers and hotline
• auditing and monitoring, both to determine whether the organization controls had worked well
• perform data analysis, such as transaction data, operational until the financial

3. Response, the control is designed to take corrective action and repair damage caused by such fraud and misconduct.
• conduct an investigation on the facts that really happened
• apply the discipline, so there are penalties for breaking the rules
• implement transparency in terms of investigation findings
• take remedial action