Identify two regulations and describe their origin and role in managing risks within banks. What risk management standards did the banks employ as a result of the regulations?

The Basel Accords, and the Sarbanes-Oxley Act have both had a major impact on banks’ risk management. Basel Accords is an international standard set by Bank for International Settlements in 1988. It was designed to ensure sound financial practices and encourage good banking. As a result, banks began introducing more stringent risk management protocols – such as establishing stress tests to measure their ability to withstand market shocks –in order to ensure they remain compliant with these standards.

Sarbanes-Oxley Act passed in US in 2002, following Enron’s collapse and many other scandals. This act imposes greater transparency for publicly-traded companies. In order to be compliant with the law, firms must keep detailed records of all financial transactions. They also have to reveal any conflicts of interest that may exist between executive and shareholder. As a result, banks implemented internal controls that aim to reduce the risk of fraud and money misappropriation.

Both regulations played an important role in promoting accountability within the banking industry, and encouraging companies to take appropriate steps for future loss prevention.