This article can be divided into four parts, explaining the risks of Wellfleet Bank, additional risks after new focus and recruitment, calculation for the proposal and analysis of risk management processes in order.
Risks of Wellfleet Bank
Given its strategy, Wellfleet bank may face several kinds of risks: credit risk, country or sovereign risk, regulatory risk, compartmentalized risk and market risk.
Credit risk was the first one that Wellfleet bank may have. Credit risk arises from the possibility that promised cash flows held by the bank, such as loans or bonds, will not be paid in full. According to the case, the number of proposals for the Group Credit Committee to project increased from 220 (for 2008) to over 300 (for 2009). What’s more, the largest credit proposals were nearing $1 billion each and each of these large-scale credit applications involved a mega-risk. As per the mantra of the bank, “If a billion-dollar deal went wrong, it could sink the ship.”
Secondly, regardless of its customer base, which was most of its 6 million retail customers and 15,000 corporate clients resided out of the U.K., Wellfleet’s headquarter was still in London and it complied with regulations and standards like any other U.K.-based banks. Wellfleet considered the “first-world compliance standards” as an important competitive advantage over local rivals in emerging markets. But the risk was its repayments from the local borrowers might be interrupted by the interference of foreign governments or other changes of local
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markets. Such kind of country or sovereign risk was another risk for a globally oriented bank like Wellfleet.
Thirdly, regulatory risk had an increasing impact on Wellfleet bank. Because of the global financial crisis, more and more international regulatory rules set up by some international risk-management organizations started to formalize financial