The banking system is subject to various risks from "summary" of Economics of Money, Banking and Financial Markets, Business School by Frederic S. Mishkin
The banking system faces a range of risks that can impact its stability and operations. One key risk is credit risk, which arises from the possibility that borrowers may default on their loans. Banks must carefully assess the creditworthiness of borrowers and manage their loan portfolios to mitigate this risk. Another important risk is interest rate risk, which stems from fluctuations in interest rates. Banks with mismatched assets and liabilities are particularly vulnerable to interest rate changes, as they may find themselves earning less on their assets than they are paying on their liabilities. Liquidity risk is also a concern for banks, as it involves the possibility that a bank may not be able to meet its short-term obligations. Banks must ensure that they hold enough liquid assets to cover potential outflows of funds, such as custome...
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