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Recap

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Recap Risk Management Managing Credit Risk Managing Market Risk Managing Liquidity Risk Managing Operational Risk Currency Risk Interest Rate Risk Banking Fraud and ... – PowerPoint PPT presentation

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Title: Recap


1
Recap
  • Risk Management
  • Managing Credit Risk
  • Managing Market Risk
  • Managing Liquidity Risk

2
  • Managing Operational Risk
  • Currency Risk
  • Interest Rate Risk

3
Banking Fraud and Misleading Activities Lecture
42
4
  • Bank fraud is a federal crime in many countries,
    defined as planning to obtain property or money
    from any federally insured financial institution.
    It is sometimes considered a white-collar crime.

5
Rogue Traders
6
  • A rogue trader is a highly placed insider
    nominally authorised to invest sizeable funds on
    behalf of the bank this trader secretly makes
    progressively more aggressive and risky
    investments using the bank's money,

7
  • when one investment goes bad, the rogue trader
    engages in further market speculation in the hope
    of a quick profit which would hide or cover the
    loss.

8
  • Unfortunately, when one investment loss is piled
    onto another, the costs to the bank can reach
    into the hundreds of millions of dollars there
    have even been cases in which a bank goes out of
    business due to market investment losses.

9
Fraudulent Loans
10
  • One way to remove money from a bank is to take
    out a loan, a practice bankers would be more than
    willing to encourage if they know that the money
    will be repaid in full with interest. A
    fraudulent loan, however, is one in which the
    borrower is a business entity controlled by a
    dishonest bank officer or an accomplice

11
  • the "borrower" then declares bankruptcy or
    vanishes and the money is gone. The borrower may
    even be a non-existent entity and the loan merely
    an artifice to conceal a theft of a large sum of
    money from the bank.

12
Wire Fraud
13
  • Wire transfer networks such as the international
    SWIFT inter-bank fund transfer system are
    tempting as targets as a transfer, once made, is
    difficult or impossible to reverse. As these
    networks are used by banks to settle accounts
    with each other, rapid or overnight wire transfer
    of large amounts of money are commonplace

14
  • while banks have put checks and balances in
    place, there is the risk that insiders may
    attempt to use fraudulent or forged documents
    which claim to request a bank depositor's money
    be wired to another bank, often an offshore
    account in some distant foreign country.

15
Forged or Fraudulent Documents
16
  • Forged documents are often used to conceal other
    thefts banks tend to count their money
    meticulously so every penny must be accounted
    for. A document claiming that a sum of money has
    been borrowed as a loan,

17
  • withdrawn by an individual depositor or
    transferred or invested can therefore be valuable
    to a thief who wishes to conceal the minor detail
    that the bank's money has in fact been stolen and
    is now gone.

18
Uninsured Deposits
19
  • There are a number of cases each year where the
    bank itself turns out to be uninsured or not
    licensed to operate at all. The objective is
    usually to solicit for deposits to this uninsured
    "bank", although some may also sell stock
    representing ownership of the "bank".

20
  • Sometimes the names appear very official or very
    similar to those of legitimate banks. For
    instance, the "Chase Trust Bank" of Washington DC
    appeared in 2002 with no license and no
    affiliation to its seemingly apparent namesake
    the real Chase Manhattan Bank is based in New
    York.

21
  • There is a very high risk of fraud when dealing
    with unknown or uninsured institutions.
  • The risk is greatest when dealing with offshore
    or Internet banks (as this allows selection of
    countries with lax banking regulations), but not
    by any means limited to these institutions.

22
Theft of Identity
23
  • Dishonest bank personnel have been known to
    disclose depositors' personal information for use
    in theft of identity frauds. The perpetrators
    then use the information to obtain identity cards
    and credit cards using the victim's name and
    personal information.

24
Demand Draft Fraud
25
  • Demand draft fraud is usually done by one or more
    dishonest bank employees. They remove few DD
    leaves or DD books from stock and write them like
    a regular DD. Since they are insiders, they know
    the coding, punching of a demand draft. These
    Demand drafts will be issued payable at distant
    town/city without debiting an account.

26
  • Then it will be cashed at the payable branch. For
    the paying branch it is just another DD. This
    kind of fraud will be discovered only when the
    head office does the branch-wise reconciliation,
    which normally will take 6 months. By that time
    the money is unrecoverable.

27
Stolen Cheques
28
  • Some fraudsters obtain access to facilities
    handling large amounts of cheques, such as a
    mailroom or post office or the offices of a tax
    authority (receiving many cheques) or a corporate
    payroll or a social or veterans' benefit office
    (issuing many cheques).

29
  • A few cheques go missing accounts are then
    opened under assumed names and the cheques (often
    tampered or altered in some way) deposited so
    that the money can then be withdrawn by thieves.
    Stolen blank cheque-books are also of value to
    forgers who then sign as if they were the
    depositor.

30
Accounting Fraud
31
  • In order to hide serious financial problems, some
    businesses have been known to use fraudulent
    bookkeeping to overstate sales and income,
    inflate the worth of the company's assets or
    state a profit when the company is operating at a
    loss.

32
  • These tampered records are then used to seek
    investment in the company's bond or security
    issues or to make fraudulent loan applications in
    a final attempt to obtain more money to delay the
    inevitable collapse of an unprofitable or
    mismanaged firm.

33
Stolen Credit or Debit Cards
34
  • Often, the first indication that a victim's
    wallet has been stolen is a 'phone call from a
    credit card issuer asking if the person has gone
    on a spending spree the simplest form of this
    theft involves stealing the card itself and
    charging a number of high-ticket items to it in
    the first few minutes or hours before it is
    reported as stolen.

35
  • A variant of this is to copy just the credit card
    numbers (instead of drawing attention by stealing
    the card itself) in order to use the numbers in
    online frauds.

36
Fraudulent Loan Applications
37
  • These take a number of forms varying from
    individuals using false information to hide a
    credit history filled with financial problems and
    unpaid loans to corporations using accounting
    fraud to overstate profits in order to make a
    risky loan appear to be a sound investment for
    the bank.

38
Can We Avoid Cheque Fraud?
39
Reconcile your account
  • Reconcile your cheque account promptly and
    regularly.
  • If you hold business accounts, consider opening a
    separate account specifically for higher value
    cheques, so they can be easily monitored.

40
Signing of cheques
  • Never sign blank cheques, only sign cheques after
    all details have been completed.

41
Preparation
  • Cheques must be completed in a way that deters
    fraudulent alternation. Ensure that a strong bold
    and consistent font is used and that no gaps are
    left in completion of the payee name, amount in
    words and in figures.
  • Use permanent ballpoint or ink (preferably black)
    when filling out a cheque.

42
Ordering and maintaining cheques
  • If cheques are lost or stolen contact your bank
    immediately and ask them to load a Stop
    Payment.
  • Notify bank, if you have not received an ordered
    cheque book.

43
Protect your credit / debit card
44
  • Save your personal identification number (PIN).
    Don't use the same PIN for different cards or
    equipment, and don't choose your birth date or
    any other easily identifiable number that might
    be on something else in your wallet.

45
  • Check statements and call your credit card issuer
    immediately if you see anything suspicious on
    your bill. You could help the company uncover
    fraudand save yourself from paying un-authorized
    charges.

46
  • Keep track of when new and reissued cards should
    arrive, and call the credit card issuer if they
    don't come on time.
  • Make sure your mailbox is secure, and that only
    you and the postal carrier have access to it.

47
  • When you use your credit card online, make sure
    you are using a secure website. Look for a small
    key or lock symbol at the bottom right of your
    browser's window.

48
  • Never give your card number to strangers or
    telemarketers who call you on the phone. Don't
    give your card number unless you initiated the
    call.

49
Recap
  • Banking Fraud and Misleading Activities
  • Rogue Traders
  • Fraudulent Loans
  • Wire Fraud

50
  • Forged or Fraudulent Documents
  • Uninsured Deposits
  • Theft of Identity
  • Demand Draft Fraud

51
  • Stolen Cheques
  • Accounting Fraud
  • Stolen Credit or Debit Cards
  • Fraudulent Loan Applications
  • Can We Avoid Cheque Fraud?
  • Protect your credit / debit card
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