Fundamentals of Banking Operations

3. Risk and Regulatory Framework

Banking is inherently exposed to multiple forms of risk due to maturity transformation, leverage, and information asymmetry between lenders and borrowers. If not properly managed, these risks can threaten not only individual institutions but also the stability of the entire financial system.

This chapter analyzes the primary categories of banking risk—credit risk, liquidity risk, and operational risk—and examines the regulatory frameworks designed to mitigate them. Special attention is given to the supervisory role of central banks and the international standards established under the Basel Accords. A strong regulatory and risk management framework ensures resilience, depositor confidence, and systemic stability.