• Assume that you are the CEO of CIBC.
• The bank has a large portfolio of Canadian mortgages
• The economy is changing dramatically and there is a big expectation that both the interest rates and inflation will increase, which may result in a large default percentage for the mortgages that the bank carries
• Identify the different measures that the bank should take to mitigate the risk of the events that can ensue from this increase in inflation and interest rates
• Create a risk matrix that shows how different possible events (at least four) can be categorized
• Provide specific numeric examples based on the company financial statements

 

Answer:

Canadian Imperial Bank of Commerce (CIBC) is a Canadian international company which provides banking and monetary services. Canadians have wanted to own homes and the cheapest and safest way of owning a home is through acquiring mortgages. Mortgages are loans issued out by banks in order to acquire homes and real estate. 

Measures taken to mitigate the risk of events due to interest rates and inflation

The bank can ask its employees to take a voluntary pay cut in order to help the bank in these tough times. The money obtained from the pay cuts would help a lot in other areas around the bank. The bank can also stop the process of issuing out mortgages until the economy is stable. This will help in managing the remaining mortgages well and it would be easier to follow them up. The bank can also decide to lower interest rates to new customers who want to take mortgage loans. This method would encourage customers to take up mortgages since they will be cheap.

Risk matrix

This is a matrix used to assess risk and find out its level of the risk by considering its class of chance against the chance of severity. Its benefit is that it shortens the risk management process and it helps in recognizing and ranking the risks from the most severe to the least severe.

The following is a 4x4 risk matrix

Probability

Consequence

probability

1-      Unlikely to occur

2-      It may occur

3-      May take time to occur

4-      It will occur

Specific numeric examples on financial statements

In the year 2019 the company had $ 639,716 million in assets, in 2020 the asserts increased to $ 735,492 million. Total liabilities and equity in 2019 it was $ 639,716 and in 2020 it was $ 735,492

References;

 https://www.cibc.com/content/dam/about_cibc/investor_relations/pdfs/quarterly_results/2020/ar-20-en.pdf

Kova?evi?, N., Stojiljkovi?, A., & Kova?, M. (2019). Application of the matrix approach in risk assessment. Operational Research in Engineering Sciences: Theory and Applications, 2(3), 55-64.