Risk Management Glossary

A set of international banking regulations that establish minimum capital requirements and risk management standards for banks.

The process of creating systems of prevention and recovery to ensure critical business functions continue during and after a disaster.

The expected loss given that the loss exceeds the VaR threshold, providing insight into tail risk severity.

A framework developed by the Committee of Sponsoring Organizations to guide enterprise risk management integrated with strategy and performance.

The potential for financial loss arising from a borrower's or counterparty's failure to meet contractual obligations.

A holistic approach to managing risk across an entire organization, integrating risk considerations into strategy and governance.

A strategy that uses financial instruments such as derivatives to offset potential losses from adverse price movements.

An international standard that provides principles, a framework, and guidelines for managing risk across any type of organization.

A metric that provides an early warning of increasing risk exposure, enabling proactive management before a loss event occurs.

The risk that an entity cannot meet its short-term financial obligations because assets cannot be converted to cash quickly without significant loss.

The risk of financial loss due to adverse movements in market prices such as equities, interest rates, currencies, and commodities.

A computational method that uses repeated random sampling to estimate the probability distribution of uncertain outcomes.

The risk of loss resulting from inadequate or failed internal processes, people, systems, or external events.

A visual tool that plots risks on a grid of likelihood versus severity to prioritize which risks require the most urgent attention.

The effect of uncertainty on objectives, measured in terms of likelihood and impact. It can represent both threats and opportunities.

The broad level of risk an organization is willing to accept in pursuit of its strategic objectives.

The decision to not engage in an activity that gives rise to risk, thereby eliminating the risk entirely.

Actions taken to reduce either the likelihood or the impact of a risk event to an acceptable level.

A documented log of identified risks including their description, likelihood, impact, owner, and mitigation plans.

The acceptable level of variation in performance relative to specific objectives within the overall risk appetite.

Shifting the financial impact of a risk to a third party through insurance, contracts, or financial instruments.

A process of evaluating possible future events by examining alternative plausible outcomes and their potential impacts.

Analyzing how portfolios or institutions would perform under extreme but plausible adverse conditions.

The risk of rare but extreme events occurring in the tails of a probability distribution, often underestimated by standard models.

A statistical measure that quantifies the maximum expected loss at a specific confidence level over a defined time horizon.