Non-financial risk

Venn Diagram of various non-financial risks. This is only one possible representation on how the different risk types overlap Categories of

Financial risk
Credit risk

* Settlement risk
* Concentration risk
* Sovereign risk
* Default risk

Market risk

* Interest rate risk
* Inflation risk
* Currency risk
* Equity risk
* Commodity risk
* Volatility risk
* Systemic risk

Liquidity risk

* Refinancing risk
* Deposit risk
* Margining risk

Investment risk

* Model risk
* Execution risk
* Valuation risk

Business risk

* Reputational risk
* Operational risk
* Country risk
* Political risk
* Legal risk
* Moral hazard

Profit risk
Non-financial risk

* Stranded asset

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Non-financial risks (NFR) are all of the risks which are not covered by traditional financial risk management.[1] This negative definition resembles the initial definition of operational risk, and it depends on the bank or corporation whether or not they use the term operational risk synchronously with NFR. Since 2019, the new term NFR became popular in the risk management sector[2]

## Examples

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Non-financial risks include:

* Operational risk (Op risk). In case that Op risk is considered a part of NFR (and not as equivalent), Op risk summarizes e.g. those risks which can be quantified by the use of scenario models. Examples are pandemics, floods and other weather events.
* Conduct risk means that the behavior of the cooperation's employees leads to losses[3]
* Cyber risk and IT risk are possible losses due to security breaches.
* Compliance risks are risks related to Governance, risk management, and compliance. Managing the compliance risk means putting a price tag on potential failures of adhering to self-given rules of the bank as well as Regulatory compliance.
* Regulatory risk are possible losses due to changes of the law and regulations.
* Reputational Risk is potential loss caused by the damage to a firm's reputation.

All these risk types are closely related. In the case of a data leak (which is a cyber risk incident), the reputation of the company as a whole might be at stake.[4]

## References

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1. ^ Hida, Edward; Pieper, Michael. "The future of non-financial risk in financial services". Deloitte. Retrieved 16 September 2020.
2. ^ Tattam, David. "Non-Financial Risk – Why the big focus?". Protecht. Retrieved 16 September 2020.
3. ^ Strachan, David. "Managing conduct risk - Addressing drivers, restoring trust". Deloitte. Retrieved 16 September 2020.
4. ^ Tolordava, Erekle (7 Feb 2020). "Changes to internal and external conditions and the consequent impact on an organization's risk situation require an adjustment to the organizational structure used for risk management". Capgemini Invent. Retrieved 16 September 2020.

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Financial risk and financial risk management

Categories|

| Credit risk|

* Consumer credit risk
* Sovereign credit risk
* Settlement risk
* Default risk
* Concentration risk
* Credit derivative
* Securitization

|

Market risk|

* Commodity risk (e.g. Volume risk, Basis risk, Shape risk, Holding period risk, Price area risk)
* Equity risk
* Valuation risk
* FX risk
* Margining risk
* Interest rate risk
* Inflation risk
* Volatility risk
* Liquidity risk (e.g. Refinancing risk, Deposit risk)

Operational risk|

* Operational risk management
* Business risk
* Model risk
* Reputational risk
* Country risk
* Political risk
* Legal risk

Other|

* Execution risk
* Profit risk
* Systemic risk
* Non-financial risk

Modeling|

* Arbitrage pricing theory
* Black–Scholes model
* Replicating portfolio
* Cash flow matching
* Conditional Value-at-Risk (CVaR)
* Copula
* Drawdown
* First-hitting-time model
* Interest rate immunization
* Market portfolio
* Modern portfolio theory
* Omega ratio
* RAROC
* Risk-free rate
* Risk parity
* Sharpe ratio
* Sortino ratio
* Survival analysis (Proportional hazards model)
* Tracking error
* Value-at-Risk (VaR) and extensions (Profit at risk, Margin at risk, Liquidity at risk, Cash flow at risk, Earnings at risk)

Basic concepts|

* Asset allocation
* Asset and liability management
* Asset pricing
* Bad debt
* Capital asset
* Capital structure
* Corporate finance
* Cost of capital
* Diversification
* Economic bubble
* Enterprise value
* ESG
* Exchange traded fund
* Expected return
* Financial
* adviser
* analysis
* analyst
* asset
* betting
* crime
* engineering
* law
* risk
* social work
* Fundamental analysis
* Growth investing
* Hazard
* Hedge
* Investment management
* Risk
* Risk pool
* Risk of ruin
* Systematic risk
* Mathematical finance
* Moral hazard
* Risk-return spectrum
* Speculation
* Speculative attack
* Statistical finance
* Strategic financial management
* Stress test (financial)
* Structured finance
* Structured product
* Systemic risk
* Toxic asset

* Financial economics
* Investment management
* Mathematical finance

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