It also includes the exposure to litigation from all aspects of banking, traditional and nontraditional. Strategic Risk Strategic risk is the risk to earnings or capital arising from adverse business decisions or improper implementation of those decisions. This risk is a function of the compatibility of an organization's strategic goals, the business strategies developed to achieve those goals, the resources deployed against these goals, and the quality of implementation. The resources needed to carry out business strategies are both tangible and intangible. They include communication channels, operating systems, delivery networks, and managerial capacities and capabilities.
Strategic risk focuses on more than an analysis of the written strategic plan.
It focuses on how plans, systems, and implementation affect the bank's franchise value. It also incorporates how management analyzes external factors that impact the strategic direction of the company. Reputation Risk Reputation risk is the risk to earnings or capital arising from negative public opinion. This affects the institution's ability to establish new relationships or services, or continue servicing existing relationships. This risk can expose the institution to litigation, financial loss, or damage to its reputation.