RSK4802 EXAM PACK
2026
FOR ASSISTANCE CONTACT
EMAIL:
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1
Marking memorandum Rsk4802 assignment 1 2018
QUESTION 1
One major problem that led to the financial crisis of 2007/2008 was that there was no articulation of risk
appetite or identification of those responsible when risks were incurred. Discuss the risk appetite of banks
and explain how four groups (debt holders, shareholders, regulators and governments) impact differently on
the determination by the Board of Directors of a bank of the appropriate risk appetite.
Risk appetite represents the decision of how much an organisation is willing to assume consistently with its
strategy. Each business strategy implies some amount of risk, in terms of uncertainty of the results that will be
achieved. It must be measurable √ Boards had to be clear about the strategy and risk appetite of the company
and to respond in a timely manner, requiring efficient reporting systems. √They also needed to oversee risk
management and remuneration systems compatible with their objectives and risk appetite. One major
problem that led to the recent financial crisis was that although objectives had been created, there was no
articulation of risk appetite or identification of those responsible when risks were incurred.
There are differ groups to consider when dealing with risk appetite;
a. Debt holders
The debt holders are those that provide the bank with funding and are mainly interested in the solvency of
√the bank that is capacity to fully and in a timely manner keep all the bank’s obligations. For example that is
the depositors, banks and the bondholders all of them provide the bank with funding in different ways. The
bond holders always pay more interest rate to the banks.
√
b. Shareholders
Shareholders profit is defined in a residual way, that is, what is left from the bank income after all the other
stakeholders have been paid back could also mean suffering a loss. Therefore, shareholders are interested
mainly in the bank’s profitability√ and its variability overtime because their decision-making criteria are if the
banks expected profits are adequate in comparison to the carried risks. Consequently, shareholders’ concerns
about the risk appetite are represented by the earning variability and its drivers.√
c. Regulators and supervisors
Regulators and supervisors play a key role in the financial markets and strongly impact the behaviour of
different players. Concerning the risk appetite, several regulatory elements shape it heavily in terms of tools
and amounts. This includes the Basel Accord, where regulators set out the key metrics for assessing banks
‘risks, capital and capital adequacy. Such influences have been strengthened in the forthcoming innovations to
the regulatory framework Basel III, where compulsory metrics are introduced not only with regard to capital
adequacy but also concerning liquidity. Supervisors use metrics in assessing the banks. And they pay more
attention to the bank’s decision-making process and the outcome in terms of the actual risk profile. In which
that supervisors are not only interested in mere solvability but also in medium-term business sustainability and
therefore have a perspective that exceeds the debt holders.√
d. Governments
Government as one the key component of banks, are the keener on keeping banks from suffering large losses
or being able to withstand the losses to avoid additional burden for the taxpayers. For instance, the Volcker
[TURN OVER]
Open Rubric
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2
Rule could be seen as a pre-emptive measure to prevent banks from assuming too much risk. Therefore, banks
decision on risk appetite cannot be not complaint with government expectations. State interventions extended
deposit guarantee schemes and supported banks via loans, with actual lending or guarantees offered, or by
security repurchase agreements, massive bond-purchase programs and huge recapitalizations. Sometimes,
governments often became banks’ shareholders and thus they could substantially set the risk appetite while in
other cases they negotiated covenants and action plans as a condition of rescue packages, which could
materially impact risk appetite, for instance, leading to disposing of or shutting down some business lines
deemed too risky.
√
Conclusion
All banks cannot survive without the four components; it runs it business depending on those key components
that are the debt holders, depositors, bond holders and, the banks, Shareholders, the government and, the
regulators and supervisors.
Maximum 5 points per group discussed. (20)
QUESTION 2
Define the concept “Governance, Risk Management and Compliance” (GRC) and discuss the benefits of this
approach to companies. (10)
General Introductory remarks
Under King 3 report, there are a number of issues that are discussed and these include among others
1) Issues of Good corporate governance which include
a) Good ethical practices,
b) Issues of disclosure of material issues,
c) Importance of board subcommittees specifically on risk management, remunerations, ethics and
good corporate governance
A lack of good and strong corporate governance can lead to a banking crisis √ that in turn can be the catalyst for
what can ultimately be an economic recession. √ Sound corporate governance considers the interests of all
stakeholders including depositors and others whose interest may not always be factored. √ Therefore, banking
regulators must determine that individual banks are conducting their business in a way that benefits all
stakeholders’ not just shareholders. Should there not be effective and strong governance lead by the Board
down, the business units will tend to regulate risk to achieve their own required levels as a profit center whilst
not appreciating the downside to the organization as the look towards short term results, inadequate corporate
governance stops the board from supervising down to those units.√ This leads to inadequate internal control by
the internal audit department of the group with little or no external supervision of the group. The structure
becomes non-transparent, which in turn leads to no responsibility been taken or oblique responsibility at best.
Good strong corporate governance brings about stability and the successful functioning of the financial system.√
it promotes the taking of appropriate risk and the pricing of that risk. This greases the financial engine and fuels
the economy. Leverage is a required catalyst for business and thus the livelihood of the general average person.
[TURN OVER]
, lOMoARcPSD|44660598
3
Bad governance and the failure of those “too big to fail” impacts on the lives of everyone. However, more
importantly, the contrary is also true, good governance of the banking sector instills confidence to lend and to
borrow, prices these functions appropriately and thus fuels growth, which is so important for employment, and
hence the social benefits that this brings to the wellbeing of humankind. √
©
UNISA 2018
[TURN OVER]
2026
FOR ASSISTANCE CONTACT
EMAIL:
, lOMoARcPSD|44660598
1
Marking memorandum Rsk4802 assignment 1 2018
QUESTION 1
One major problem that led to the financial crisis of 2007/2008 was that there was no articulation of risk
appetite or identification of those responsible when risks were incurred. Discuss the risk appetite of banks
and explain how four groups (debt holders, shareholders, regulators and governments) impact differently on
the determination by the Board of Directors of a bank of the appropriate risk appetite.
Risk appetite represents the decision of how much an organisation is willing to assume consistently with its
strategy. Each business strategy implies some amount of risk, in terms of uncertainty of the results that will be
achieved. It must be measurable √ Boards had to be clear about the strategy and risk appetite of the company
and to respond in a timely manner, requiring efficient reporting systems. √They also needed to oversee risk
management and remuneration systems compatible with their objectives and risk appetite. One major
problem that led to the recent financial crisis was that although objectives had been created, there was no
articulation of risk appetite or identification of those responsible when risks were incurred.
There are differ groups to consider when dealing with risk appetite;
a. Debt holders
The debt holders are those that provide the bank with funding and are mainly interested in the solvency of
√the bank that is capacity to fully and in a timely manner keep all the bank’s obligations. For example that is
the depositors, banks and the bondholders all of them provide the bank with funding in different ways. The
bond holders always pay more interest rate to the banks.
√
b. Shareholders
Shareholders profit is defined in a residual way, that is, what is left from the bank income after all the other
stakeholders have been paid back could also mean suffering a loss. Therefore, shareholders are interested
mainly in the bank’s profitability√ and its variability overtime because their decision-making criteria are if the
banks expected profits are adequate in comparison to the carried risks. Consequently, shareholders’ concerns
about the risk appetite are represented by the earning variability and its drivers.√
c. Regulators and supervisors
Regulators and supervisors play a key role in the financial markets and strongly impact the behaviour of
different players. Concerning the risk appetite, several regulatory elements shape it heavily in terms of tools
and amounts. This includes the Basel Accord, where regulators set out the key metrics for assessing banks
‘risks, capital and capital adequacy. Such influences have been strengthened in the forthcoming innovations to
the regulatory framework Basel III, where compulsory metrics are introduced not only with regard to capital
adequacy but also concerning liquidity. Supervisors use metrics in assessing the banks. And they pay more
attention to the bank’s decision-making process and the outcome in terms of the actual risk profile. In which
that supervisors are not only interested in mere solvability but also in medium-term business sustainability and
therefore have a perspective that exceeds the debt holders.√
d. Governments
Government as one the key component of banks, are the keener on keeping banks from suffering large losses
or being able to withstand the losses to avoid additional burden for the taxpayers. For instance, the Volcker
[TURN OVER]
Open Rubric
, lOMoARcPSD|44660598
2
Rule could be seen as a pre-emptive measure to prevent banks from assuming too much risk. Therefore, banks
decision on risk appetite cannot be not complaint with government expectations. State interventions extended
deposit guarantee schemes and supported banks via loans, with actual lending or guarantees offered, or by
security repurchase agreements, massive bond-purchase programs and huge recapitalizations. Sometimes,
governments often became banks’ shareholders and thus they could substantially set the risk appetite while in
other cases they negotiated covenants and action plans as a condition of rescue packages, which could
materially impact risk appetite, for instance, leading to disposing of or shutting down some business lines
deemed too risky.
√
Conclusion
All banks cannot survive without the four components; it runs it business depending on those key components
that are the debt holders, depositors, bond holders and, the banks, Shareholders, the government and, the
regulators and supervisors.
Maximum 5 points per group discussed. (20)
QUESTION 2
Define the concept “Governance, Risk Management and Compliance” (GRC) and discuss the benefits of this
approach to companies. (10)
General Introductory remarks
Under King 3 report, there are a number of issues that are discussed and these include among others
1) Issues of Good corporate governance which include
a) Good ethical practices,
b) Issues of disclosure of material issues,
c) Importance of board subcommittees specifically on risk management, remunerations, ethics and
good corporate governance
A lack of good and strong corporate governance can lead to a banking crisis √ that in turn can be the catalyst for
what can ultimately be an economic recession. √ Sound corporate governance considers the interests of all
stakeholders including depositors and others whose interest may not always be factored. √ Therefore, banking
regulators must determine that individual banks are conducting their business in a way that benefits all
stakeholders’ not just shareholders. Should there not be effective and strong governance lead by the Board
down, the business units will tend to regulate risk to achieve their own required levels as a profit center whilst
not appreciating the downside to the organization as the look towards short term results, inadequate corporate
governance stops the board from supervising down to those units.√ This leads to inadequate internal control by
the internal audit department of the group with little or no external supervision of the group. The structure
becomes non-transparent, which in turn leads to no responsibility been taken or oblique responsibility at best.
Good strong corporate governance brings about stability and the successful functioning of the financial system.√
it promotes the taking of appropriate risk and the pricing of that risk. This greases the financial engine and fuels
the economy. Leverage is a required catalyst for business and thus the livelihood of the general average person.
[TURN OVER]
, lOMoARcPSD|44660598
3
Bad governance and the failure of those “too big to fail” impacts on the lives of everyone. However, more
importantly, the contrary is also true, good governance of the banking sector instills confidence to lend and to
borrow, prices these functions appropriately and thus fuels growth, which is so important for employment, and
hence the social benefits that this brings to the wellbeing of humankind. √
©
UNISA 2018
[TURN OVER]
