STRATEGIC REVENUE ENHANCEMENT: OPTIMIZING RISK-WEIGHTED ASSET MANAGEMENT
Abstract
The cancellation of insurance contracts poses significant risks to banks, potentially leading to severe asset value decimation and exposure to insurable damages. To mitigate these risks, banks must implement strategies that ensure continuous insurance coverage for their assets. One effective approach is to raise fees commensurate with the risk-weight of assets whose insurance contracts are cancelled. This method encourages banks to consistently verify the existence of insurance cover through monthly requests for copies, facilitated by advanced systems and methods developed for insurance verification. Such a strategy aligns with practices like force-placed insurance, which is imposed on borrowers who halt their homeowners’ insurance due to defaulting on mortgage commitments (Cronkite-Chi and Kent, 2016). By adopting this risk-weight-based fee generation method, banks can enhance their risk mitigation efforts and improve performance, countering the impact of the Basel III accord on income-generating capacity.
Keywords:
Risk mitigation Insurance verification Asset protection Fee generation Basel III complianceDownloads
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