The process of limit management is both an art and a science. The “science” lies in the quantitative analysis and modeling used to determine appropriate limits based on historical data, stress tests, and regulatory requirements. The “art” is in the judgment and experience required to adapt these limits to changing market conditions and strategic objectives. A robust limit management framework includes clear policies, regular monitoring and reporting, and a well-defined escalation process for breaches. By proactively defining and managing risk limits, financial institutions can maintain stability, protect their capital, and ensure that their risk-taking activities remain aligned with their overall business strategy.
Limit and Exposure management in Banking
