п»їI. Statement of the Problem
Lincoln national bank had huge loan deficits in 1980's, Mr. Vigil, the CFO didn't want to duplicate the blunders LNB got in the past and wish to create preventive measures and avert foreseeable future risks.
II. Objectives from the problem
The aim is to help LNB review its earlier performance to avoid future challenges and also to ensure that the bank maximize shareholder's prosperity.
III. Aspects of consideration
a. One area which needs to be considered is definitely Credit risk or the potential variation in net income and market value of equity resulting from non-payment or delayed payment on loans and securities. If various borrowers' financial loans defaulted then this interest income of the financial institution will lower and it will certainly not maximize profitability.
b. One more area that should be considered is a liquidity risk or the variation in net gain and their market value of fairness caused by a bank's difficulty in obtaining cash cheaply from possibly the sale of assets or perhaps new borrowings.
c. Last place to be deemed is the Detailed risk or the measurement of the cost efficiency from the bank's activities; i. elizabeth., expense control or output; also steps whether the lender has the right procedures and systems in place. LNB has an above-average personnel expense per employee. There is absolutely no meaningful method to approximate the likelihood of scam or other contingencies via published info. A bank's operating risk is tightly related to the operating policies and techniques and whether it has adequate controls.
4. Alternative Methods of Action
1 ) First substitute course of action should be to have a strong credit guidelines and control to up its standards and requirements before lending money towards the borrower to prevent facing standard problems. One particular advantage is to avoid lending money to illiquid lender and also there will be provisions and allowance to net loss. The disadvantage is a bank will not be able loan money conveniently without exploring the borrowers ability...