Credit Risks of Wells Fargo & Company Bank - Management Essay Sample

Paper Type:  Essay
Pages:  4
Wordcount:  929 Words
Date:  2021-06-10
Categories: 

Just like any other retail bank, Wells Fargo & Company faces some credit risks. The risks are a threat to the progress of the organization, and it would only be prudent if Wells Fargo & Company have the right strategies to counter them. Credit risks refer to the risks of default on a debt that may be brought about when the borrower fails to make the required payment (Bluhm, 2016). Wells Fargo & Company can undergo this risk when the risk is that of a lender, and this will entail the principal and the interest, increased collection cost as well as the disruption of the cash flow. Depending on how the borrower depends on paying the debt, the risk may be partial or complete. Wells Fargo & Company can face some credit risks depending on the circumstance. It can suffer credit risk when an organization they have lent is unable to repay a floating charge debt or an asset secured fix. It can also suffer their consumers (The people that they do lend the money) fail to comply with the agreed terms. The consumer may fail to make the required loan due to the line of the credit, credit card or the mortgage loan. Another type of credit risk that can be suffered in the organization is when the government gives bankruptcy protection to an insolvent organization or consumer (Minton, 2005). Through this, Wells Fargo & Company may not be in a position to claim the amount that they loaned the borrower. Bad debt is also another type of credit risk that Wells Fargo Company can undergo. This occurs when the borrower refuses to pay the loaned amount. The bank is forced to treat the loan as a bad debt when the borrower goes missing, and there is nothing that can be reclaimed from him/her. Wells Fargo & Company has in the recent time undergone this type of credit risk where during the subprime crisis. There have been losses due to the amounts of loans made to the high-risk borrowers. Most of the high-risk borrowers couldnt reach their loans. This turned to credit losses by the company.

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The credit risks that are associated with individuals are different from the credit risks that are associated with the institutions. Wells Fargo & Company gives loans to both individuals and companies. These two types of credit are treated differently and therefore bear different types of risks. Institutional credit risks arise when principally within the merchant services, organization corporate card services and network services. This is different from individual credit risk which is the risk of loss brought about where the individual borrower fails to repay the consumer credit product like the unsecured personal loan, mortgage, and credit. Institutional credit risk differs from the individual credit risk in that the institutional credit risk has a lower loss frequency though has a higher severity. The institutional credit risk is affected by both the borrower-specific events and the general conditions. In the consumer credit risk is managed by a department that looks into the measurement, control of losses and prediction while institutional losses are managed by institutional risk committee (Data, 2007). This shows that they are treated separately.

Wells Fargo & Company gives some retail banking service to individuals. Wells Fargo and Company gives financial solutions to the consumers such as investment solutions and retail banking. Furthermore, Wells Fargo & Company gives certificates of deposits to individuals. For commercial individuals, Wells Fargo & Company gives organizations a wide employee retirement services. Furthermore, the treasury management services entail accounts receivable and account payable managements. The loan and credits given to the individual by Wells Fargo & Company include equity loans and lines of credit, home mortgages, auto loans, students loan as well as personal unsecured loans. On the banks investment segment, there is health saving accounts, retirement savings account as well as personal portfolio management service. All these are important services that are given by the company to ensure that the primary goal of the organization of ensuring that there is financial security among there consumers is achieved. Consumers that meet the required qualifications by the bank can join the private bank that provides assistance of financial planning experts to meet the expectations of the clients (Tom, 1997). Wells Fargo & Company also has a supply chain financing unit that allows the commercial clients to get increased purchasing power through lower risk and greater resources. Wells Fargo & Company also provides retail banking services to institutions. The company offers ideas to institutions that might be of help to them. Capital market services, foreign exchange services, asset management services as well as credit and financing are some of the retail banking services that the bank offers to institutions.

Wells Fargo & Company has a very good strategy for assessing the credit risk. The assessment of the credit risks by Wells Fargo & Company is under one department. The department looks into both the institution and individual risk. The bank has an effective management system for mitigating the risks. This can be seen from the board of directors and their importance to the organization. Furthermore, there is legislation on the banks financial reporting which helps to mitigate the credit risks.

ReferencesBluhm, C., Overbeck, L., & Wagner, C. (2016). Introduction to credit risk modeling. Crc Press.

Data, F. Wells Fargo & Co.

Minton, B. A., Stulz, R., & Williamson, R. (2005). How much do banks use credit derivatives to reduce risk? (No. w11579). National Bureau of Economic Research.

Tom, M. D. (1997). U.S. Patent No. 5,696,907. Washington, DC: U.S. Patent and Trademark Office.

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Credit Risks of Wells Fargo & Company Bank - Management Essay Sample. (2021, Jun 10). Retrieved from https://midtermguru.com/essays/credit-risks-of-wells-fargo-and-company-bank-management-essay-sample

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