Reputational Risk in Banking and Finance | Sanjeev Kaushik | Skillshare

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Reputational Risk in Banking and Finance

teacher avatar Sanjeev Kaushik, Lifelong student of Banking & Finance.

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Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

19 Lessons (1h 18m)
    • 1. Reputational Risk Intro

    • 2. Why Study Reputional Risk

    • 3. Fall of Northern Rock Bank

    • 4. Curious Case of ICICI Bank

    • 5. Reputional Risk Definitions

    • 6. Valuing Intangibles

    • 7. The Case of Goodwill

    • 8. Story of Royal Bank of Scotland - Part 1

    • 9. Story of Royal Bank of Scotland - Part 2

    • 10. Quantifying Reputional Risk-Qualitative Measures

    • 11. Quantifying Reputional Risk-Quantitative Measures - Part 1

    • 12. Quantifying Reputional Risk-Quantitative Measures - Part 2

    • 13. Quantifying Reputional Risk-Quantitative Measures - Part 3

    • 14. 5 Steps of Managing Reputation. Why manage it and Who Should Manage Reputation?

    • 15. Managed well by Suntrust Banks

    • 16. Advantages and Disadvantages

    • 17. Crisis v Reputation Management and Rightful place of Reputation

    • 18. Essence of Reputational Risk

    • 19. Summary & Thank You Note!

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About This Class

 "All truths are easy to understand once they are discovered; the point is to discover them"

- Galileo Galilei

Got a name?

Everything in this world with a ‘name’ needs to deal with Reputational risk to avoid earning a ‘bad name’.

Be it individuals like us or big brand like Apple, onus is always on the name owner to protect it with all its might.

We all feel the urge to ensure that we are perceived by the world exactly how we want them to!

But it’s easier said than done! As the very difference between who we are and how the world perceives us; leads to a massive risk to our image.


Maintain it!

Although, it is totally acceptable to see an entity engaged in damage control while facing image crisis. Yet, when we see a company or even politicians; actively trying to manage people’s perception about themselves; we ironically tag them as manipulative or fake.

Thus, managing reputation is not an easy task as one needs to maintain a fine balance between being manipulative to being reactive after earning bad rap.

If managing reputation is such a challenging task, then what  happens when it’s a bank in question struggling with its deteriorating image in public?


Be Bankable..

While, we heavily rely on these institutions to keep our money safe & secure however, what if they lose our trust?

Wondering if it ever happened in the history of banking when people lost trust on their bank and rushed towards its branches to withdraw all their money?

Well, it happened and not just once but many times. Nations across the globe have seen banks falling due to Reputational crisis and bank run (a phenomenon when a considerable part of the bank’s customers withdraw their money at the same time due to the fear that the bank won’t fulfil its obligations).

If a bank run takes place, it doesn’t really matter whether the fear is well-founded or only based on rumours, the result will always be the same, bank failure. No bank can survive if all its customers withdraw their money at the same time. Thus, a bank run is a self-fulfilling prophecy, increases the likelihood of bank failures and destabilises the economy.

This also explains why it is so important for a bank to maintain its image of a trustworthy and sound institute as they are the flag bearers of a functional economy.


Because Reputation is Everything.

It’s not an easy task to characterize Reputation risk. We all know about it and have our own understanding on how to manage it.

For some, it is a specific risk with clear drivers and tangible business consequences, even if these are hard to quantify.

For others, it is a risk of risks that does not exist on a standalone basis.

A third perspective is that reputation risk is not a risk at all, simply an outcome of other risks.

While, these three views capture the 'essence of reputation risk' yet a lot is left unsaid about it.

Therefore, I decided to capture all the aspects of Reputational Risk in this course and you will find that there is much more to this risk than meets the ‘naked’ eyes.

Overview of Class

This class will take you through a journey of interesting case studies and real life stories entangled within the reputational risk concepts to ensure that the complex topics are demystified and you feel enlightened by the end the class.

We will cover the following topics in detail:

  • Hypothesis “Reputation is Everything”. Stories:
    • Northern Rock Bank
    • ICICI Bank
  • Global Definitions of Reputational Risk
    • 3 Major Definitions
    • Basel Committee on Reputational Risk
  • What is at Stake?
    • Valuing Intangibles
    • Goodwill vs Reputation
    • Story of Royal Bank of Scotland
    • Qualitative & Quantitative Approaches
  • Managing Reputational Risk
    • 5 Steps Process
    • Why Manage Reputation
    • Who Should Manage
    • Story of SunTrust Banks
    • Advantages & Disadvantages
  • Reputation Management vs Crisis Management
  • Rightful place of Reputational Risk
  • Essence of Reputational Risk
  • Final Thought

Meet Your Teacher

Teacher Profile Image

Sanjeev Kaushik

Lifelong student of Banking & Finance.


Men are haunted by the vastness of eternity and so we ask ourselves, "Will our actions echo across the centuries, will strangers hear our name long after we are gone and wonder; who we were? How bravely we fiercely we loved....?"

Opening Narration - TROY 2004.


I consider myself a lifelong student of financial risk management and thoroughly enjoy my job as a risk professional, a career chosen carefully by choice and not by chance.

I have spent well over a decade in carving Banking Risk Management as my area of proficiency by working on Basel implementation & regulatory reporting projects.

An engaging Risk domain trainer with expertise in Basel, Data Governance & Risk Systems.

See full profile

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1. Reputational Risk Intro: welcome to the course on reputational risk in banking and financial sector. If I want to ask you one question, what you think is the biggest risk that a company in fungible faces. You may say credit market operation risk, but you can never be wrong. If you would say that the biggest risk that a company faces actually is a reputational risk . Hi, everyone. My name is Sanjay Akashic, and I know a thing or two about financial risk management. I worked with a number of banking and financial firms and gathered some bit of knowledge on this domain. I can assure you one thing. This is not going to be a boring topic at all. I will make sure that we learn about the concepts of repetition risk management in an entertaining manner. So it doesn't matter whether you're a student. Professional adjusted, curious soul will be learning about reputational risk with help off some real world stories . So how will the correspond out for us? We'll start off with looking at a few off the real world stories, and then we would also look at some global definitions of repetition. Risk will try to understand how is it that reputation risk is quantified. Other. Really? Any ways that you can quantify your reputation. Can you really find out what your images work? We'll try and understand those concepts as well, after understanding the difficult part. Then we'll move on to how to banks actually managed reputation in today's scenario. After that, we would try to understand what is the difference between reputation and crisis management and will also try to understand Where is it that the company's go all the way wrong? Because they don't realize the differences between crisis management and reputation. Management will try to understand the rightful place off reputation risk when it comes to strategizing the business policies and lastly, will try to understand what is the essence of repetition risk. And I can assure you one thing. By the end off this course, you would know everything that you need to know about repetition risk. So stay tuned. We'll see you soon. I hope you'll be able to get some value out of this course 2. Why Study Reputional Risk: I hope by now you're excited to learn about repetition risk in banking and financial industry with the help of some real life stories. Before we get into the course, you might also be wondering, why is it so important to study reputation risks? There are many reasons why we need to learn about repetition risk. In today's era, one of the primary reason for studying reputation risk is because this is identified as one off the terminal risk, a risk that, if materializes, can lead to decimation off a company. And reputation. Risk is identified as one of the major risks that can prove to be terminal for a bank of financial firm. But at the same time, there are still no clearly defined rules around managing reputation. But I won't really be surprised to see more and more roles and responsibilities flaring up in organizations in near future. That would demand expertise in the area off reputation management. And that's why if you are looking to build courier in risk management, reputational risk can definitely be one of the areas you should be considering. Another reason why you should be considering studying reputational risk is because the lack off complete research in this field. Yes, if you compare reputational risk with other pre established risks such as credit market operational risk, you would find that there already are a lot off literature around those risks. You can easily measure them and manage them, and they're the most widely spoken risks in the world off financial risk management. But reputation risk is not that lucky. Abbott say it is still an under researched area. There isn't much of a literature available in the real world. And even though the risk is a terminal risk, it still doesn't qualify as one of the major risks that banks and financial firms target for managing and measuring purpose. And last reason is nothing but the reinforcement off first reason that is reputation. Risk is not just the terminal risk. In theory, banks actually have fallen because of reputation, crisis, and we would be looking at some of those stories during this course. Why study repetition risk only in the banking industry because banking industry is the second most compliance extensive industry in the world. Yes, banks are not just answerable to customers, but also to the regulators, governments and investors and one of the reasons they're so highly regulated is because they deal with people's money and therefore cannot be allowed to have a free run whatsoever . But if you're wondering what can be more important than our money and why banking industry is not the most regulated industry than no prizes for guessing. The only thing that we humans value more than our money is our health. Pharmaceutical and health industry is the most regulated industry in the world, but that's not all. Let's talk in ground level the level where you and I stand, so I ask which off. These, even if materialize, will lead to more devastation for you, for off your favorite brand apple or maybe fall of your bank. Now you may have a love hate relationship with your bank, and you may love the brand apple. But believe me, it would be much more of painful to lose your deposited money than losing after sales services on your apple products after the fall of Apple brand. Now, this may be a hypothetical question, but it really goes on to prove that banking industry is one of the most important industries in a functional economy, and because reputational risk is a terminal risk. It becomes even more important in today's era to learn about it. So in the next section will be working with the hypothesis that reputation is everything. The answers of future lie indeed, so past. So I will be talking about two stories from two different banks that face repetition crisis on because of the way they responded once alive and the other one failed. So I have some really cool insights coming up from the financial crisis off last decade. Stay tuned. I'll see you soon. 3. Fall of Northern Rock Bank: Welcome back. Let's dive right into the hypothesis and stories surrounding financial crisis of 2000 and eight. So it was the time when the financial crisis had already originated in the United States of America. Too many other economies were also getting impacted as a result off the crisis. But there was something very different kind of a situation that Northern Rock UK based bank was facing. UK saw its first bank run in 140 years to what is a bank run? I'll explain about it real shortly, but let's talk about Northern Rock is a back. It's another rock was United Kingdom's fifth largest mortgage lender, bank. It was neither too big nor too small. But it did have a portfolio off real estates, not just in UK but also in other countries, including the USA. Let me also quickly explain what a bank run is. A bank run is nothing but a phenomena where more than usual customers rushed towards their bank to the drum money that they had deposited in the bank, and this usually happens when people stop trusting their bank. All the bank run is a very ancient bank. Runs have been happening for centuries Now. Nowadays, you don't even have to go to a bank to rejoin your money. All you have to do is just log into your Internet banking account and withdraw the money. But why is it that the bank runs happen? Because people lose trust in your bank? And that's why managing your reputation is so important? Let's look at the events. What is it that actually happened that led to bank run on Northern Rock? Northern Rock was heavily exposed to mortgage market. And during the financial crisis, you might also be aware that securitization on top off the mortgage loans was one of the major reasons why the financial crisis hooker and at the same time not the rock was one of the big players in the market of securitization. Because off the liquidity crisis that US and the other countries were facing, no, the rock found that it really needs some capital on an urgent basis. So on September 12 Northern Rock reached out to Bankoff, England, which is the supervisory Bankoff UK, for some emergency funding. Now this may be a one off request, and not the rock might have been facing a temporary crisis of shortage of money. But because this news was leaked in the public, people started questioning whether the bank will be able to survive or not. Because there was a widespread fear among people. A lot of people were losing our jobs banks for not showing really good results. The growth was nowhere to be seen. Liquidity was drying up in the market, stock markets were crashing and combining that with the news that got leaked, people started thinking that Northern Rock Bank might not survive within just one day, that is. On September 14th £1 billion was withdrawn straight away from the bank. Now this is 5% off the total bank deposits. No bank can survive if 5% off its deposits are withdrawn in a single day. The London Stock Exchange was also not very kind to the stock prices off Northern Rock Bank , and it was getting beaten down very badly. But the story really doesn't end here. It's just a beginning. On September 17th September 14th was a Friday, so when the markets opened again after the weakened, another £1 billion was withdrawn 10% off the deposits off Northern Rock over drone in just two days. This is such a devastating situation. No bank and survive if 10% off his deposits are withdrawn straightaway, withdraw off £10 billion from the bank led to the crash on the stock market prices as well . Yes, it was getting beaten down on a daily basis on the London Stock Exchange. So much so that right after a few months when this news was leaked, London Stock Exchange had to suspend trading on the shares off Northern Rock. But there is something to consider here. Was Northern Rock Bank really in that bad shape? Or was it because of the news that had leaked in the market that led to the bank run? And that eventually led to a further deterioration in the condition off Northern Rock actually know the Rock had become a victim off reputational risk. Its image was getting distorted because it had exposure to market market, Mortgage markets were getting beaten down around the world, and the news had leaked that Northern Rock needs some money from Bank of England in order to be able to survive. The key point you to note is that if the news had not leaked. Maybe not the North would have survived. But then, as I said, risk to your reputation can prove to be a terminal risk. And that's why, when it comes to the bank runs, backgrounds are nothing but a self fulfilling prophecy. What is a self fulfilling prophecy when you take action believing something to be true? And when that phenomenon turns out to be true? Not because it was true to begin with, but because you believe that it is true and took an action believing that it is true. It turned out to be cool eventually, and this is exactly what happened in the case of Northern Rock Bank. But that's not all. It wasn't just the bank run the way not the rock was handling. The crisis was also not considered to be one of the best ways off managing reputation crisis customers that were holding Internet only bank accounts in Northern Rock but denied to withdraw their money when they reached to the branches. Why, because not the book was also right in saying that you cannot rejoice money from branches because you're holding an Internet only bank account. But consider this. Your website has already crashed because so many people are logging on your website to be able to withdraw their money. So the only avenue left is to go to the branches. And when branches deny you money, the very fear that you have that that you will be losing out on your money turns out to be true, because you can neither withdraw the money through the website north through the Bunches. The incidents like these were also in a way, fueling the fire when it came to reputation crisis for not the knock. So what happened to Northern Rock? Eventually, Northern Rock was sold to a virgin money. Yes, the Virgin Group acquired Northern Rock eventually in 2012. So this was the story off Northern Rock Bank that was not able to survive because it could not handle the crisis to repetition in the best possible manner. This goes on to prove that reputation is everything, but not every bank managers reputation in the same way. For this to understand, we would go all the way from UK to India around the same time period. That is the global financial crisis off last decade, and we would try to understand how this Indian bank was able to handle the crisis to repetition in a little different manner and as a result, was able to survive the crisis to reputation. We would also look at the similarities between the situation that I see. I see I bank as well as now. The knock was facing and eventually how ice Casey. I was able to handle it in a much better way, so stay tuned. I'll see you soon. 4. Curious Case of ICICI Bank: Let's talk about the case off. I see at a bank as well and we'll go back to the financial crisis once again. Ever said both the banks were facing very similar kind of situation. It was the same period, the global financial crisis. Most of the major economies were actually feeling the heat. I stayed in Australia and you know what? Australia actually was the only major economy that was not hurt at all from the global financial crisis. It didn't see a bit of dip, but it never actually saw the recession. So to say, talk about I see, I see a back Isis event is, and even at that time was a fairly large bank. And he cut a subsidiary in the UK which had very small exporter of Lehman Brothers. What happened has we all know demon brother had fallen and it was the biggest bankruptcy that the world had seen. But because the Lehman brother had fallen no news spreading around in Indian market that I see. I see a bank has massive exposure to Lehman Brothers and as a result I see, I see I would also for all it was a fake news but it just could not stop the background to happen. So I think I was also facing the situation of bankrupt. Look at the similarities between what was happening with Northern Rock as well as with ICSC . You see, it's not just a bank that was sending out communication in the outer world about it's safe and sound position in the market, but also the central bank in this case result Bankoff, India on in Northern Rocks case Bank of England They were also sending out communication in the public that there's nothing wrong that is happening. However, the way I see, I see I managed the reputation crisis was a little different. So what is it that I see? I see I did differently before we could get into what they did differently, let me try to explain here, What is it that I see? I stood for their charges for services were 3 to 5 times more than most off the pier backs and they were known for providing personalized services to the customers. So what is it that I see? I see I did differently. The employees off the bank was strictly advised not to deny a single customer from their withdrawal request. So anyone who would be coming inside the branches to withdraw their money they were greeted with a smile and handed over their money in other words, the stuff off the branches. But behaving as if nothing out of ordinary is happening, even though the footfalls in branches and increased multifold. Yet they were still greeting every customer with smile, and they were not really raising their eyebrows when, when customers were asking to withdraw their money and even asking for closing their accounts, they were simply closing the cards, giving them all the money that they wanted and allowing them to bring their accounts by that zero. But this does not mean that I see. I see it was not in trouble. And this also does not mean that this is the only thing that I see as he was doing that just allowing them to withdraw their money with a smile. They were doing much more than that. The back and machinery off the bank was making sure that there is enough cash in all the idioms and all the branches wherever there is unusual flow of customers, So it wanted to repair the Broken Trust Bank was borrowing money from the Reserve Bank of India, which is the supervisory bank of India, and also from its peer back to ensure that all the cash as well as the branches are full of money. Because then you, if they would deny a single customer off the federal, that would lead to devastating effects. What happened next because not a single customer was denied? The broken trust was soon repairing. People started trusting in the back again, and they thought that their mistress on the bank is unfounded. There is absolutely no reason for them to think that I see I say would fail. So you see the difference between how both the banks were actually managing your reputation . Now the wrong was going by the books. It did not help them. I see. I said he was willing to go about and beyond the written policies and rules, and because of that, I see, I see it was able to survive the crisis, and hence I rest my case. That reputation is everything, especially for backs. If you agree with me, that stick with me because we'll be looking at another few case studies from the real world and see how banks have been managing the reputation. And we will also see some really good and interesting concepts on reputation, especially about measuring, managing and characterization off. Reputational risk in the next section will start off how the world defines repetition risk with many. Look at three definitions from US, UK and Hong Kong, the financial help of the world. Then we'll also see. But the Basel Committee on Banking Supervision has to say about reputation risk. If you don't know what about the committee is, don't fret about it. I'll also be explaining briefly about what about? The committee is so stage owned. I'll see you soon. 5. Reputional Risk Definitions: welcome back from the last section we worked on our head protesters, That reputation is everything. And we also saw how not the Noche failed. And I see I say survived because both for managing the reputation slightly differently. Now we would try and understand the concepts and definitions off reputational risk. The concept off reputation has been around for a very, very long time, perhaps for as long as when people started using the convention off naming things and individuals. So with name came the concept of reputation. I personally don't really believe in definitions because you need to memorize them only to spit them out, in example. And I personally don't think that that is the best way of learning anything. No, my Let's look at the definition straight away, we'll start with you. Okay, so you get defines reputational risk as any Even that can expose a bank, do negative publicity. It could be because of the lack off trust off people in the bank. Or it could also be because of the actions taken by bank that eventually affected the psych olders. So how does Federal Reserve defines it? Fiddled results say that reputational risk is the potential off losses because off negative publicity, but also say is that negative publicity is not necessarily attracted on the bases off well founded facts or truth. It doesn't really matter whether the new spreading around for you as it happened in case of Northern Rock Bank. And I see I see a bank is true or not. If people stopped believing in your institution, if they start questioning the very foundation of your existence, this is where the reputation risk arises. So it doesn't really have to be on the grounds off well founded facts or evens. So how does Hong Kong defines it? Almost in a very similar manner? And you see how all these countries are actually stressing too much on negative publicity so any negative publicity will give rise to reputational risk. Let's try to understand how Basel committee defiance, reputational risk. So what is Battle committee to begin with? Basel Committee is an institute founded back in 1974 and it comes up with guidelines for regulation off banks. It came over guidelines Basel 123 and four. Some people like to call the recently introduced guidelines back in December 2017 as Basil four guidelines. I would still stick with those guidelines as the finalized norms off Basil Tree. Basel three was introduced back in 2010 right after the global financial crisis had hit the entire world. So it's a peak body. So every time Basel committee comes up with regulations, all the countries would pick up those regulations, modify them based on the requirement of their own country and then implement them, thus making banking industry the second most regulated industry in the world. Basil One guideline was introduced back in 1988. So it's Bean. Over three decades, that Basel committee has been coming up with banking guidelines. But what about the definition? Back in 2001 was the first time when Basil committee recognized and officially came of with the definition off reputation risk Notice how it also mentions about adverse publicity as well as talking about the negative publicity may or may not be true or accurate. If you look at the Federal Reserve's definition, let me just reproduce it here, over here for you again, look at the similarities between the two definitions. Almost similar, maybe not word by word, but definitely in the meaning. So it goes on to prove that when Basel Committee comes up with its own regulations, it's it's on concepts and definitions. The rest of the countries would just follow and try to adopt them based on their own unique country in conditions. But the definition of 2001 didn't really come out to be exhaustive and complete. So in 2009 right after the financial crisis, Basel Committee came up with another definition off reputation risk in the case of Basel Committee, what it does is it keeps on learning from the appearance it keeps on forecasting. It keeps on coming up with its own views about the market, how how the economy in the world is panning out mainly surrounding the banking industry. So in the definition of 2009 Basel Committee expanded the areas that can get impacted if reputational risk arises. And it also said who's negative perception can actually lead towards the materialization of reputation risk, it said. It's on the part of customers, counter parties, shareholders, investor regulators, anyone who believe that the bank situation is not really safe and sound can lead to reputation, risk affecting its existing businesses, its new businesses. It's business relationships on its ability to be able to raise money from the market. So this is the finalized reputation risk definition that is still in use. So if someone asked you what is the definition off? Reputational risk? This definition of 2009 off Basel Committee is the one that you should be reproducing. That's it. This is all we had to go about. The definitions now that the bowling part is out of the picture began, actually get into the media part off quantification management and characterization off reputation, risk. Sorry, This pick is so funny. I have to use it. Summer. All right. Before you called me a sadist, let me just move on up. Next. What is it ever going to learn in the next sections? We'll try to understand what is at stake for banks. How do they make sure that if repetition risk arises? They already knew in advance? What are the losses that they could have incurred? Because when it comes to credit market or operational risk, all the banks pretty much have idea how much they can lose. But when it comes to valuing something that is intangible, something as intangible as reputation or image. How do you do that So well startled, but valuing intangibles. Then we'll try to consider the case of Goodwill does. If you don't know what good will is, goodwill is something that is extremely intangible. And yet cos quantify it and also added to their balance sheets. We will try to understand where the goodwill and reputation are one and the same thing or they're different. This again is another story from the global financial crisis of last decade, and it literally shook the world. Many people lost their money from Royal Bank of Scotland stock. So if you're one of those, perhaps you would like to revisit the story once again. And in the end we would introduce the qualitative and quantitative approaches that are most often followed by banks in order to quantify their reputation. Risk. So stay tuned all season 6. Valuing Intangibles: So let's dive right into How do you quantify reputation? Risk? I'm sort of with the concept of how the intangibles are valued. So far, we have established that repetition risk. If materializes can prove to be a very Fattal risk. How does an entity know what is at stake? Reputational risk, after all, is not a mathematical derivation because off its intangible nature, it doesn't risk, which can induce losses ranging from very small losses to substantial to proving to be a terminal event when it comes to valuing intangibles. If companies have successfully being able to value something as appreciates, his life, then reputation, which is an intricate part off life, should also be quantified. And some days. But it's not that straightforward, even for valuing lives. For instance, valuing Life of Bill Gates is entirely different from valuing life or some less known guy. Sorry, it's a bad example. He's dead, maybe some other less along people. I'm sorry, Bad joke. Forgive me for my bad sense of humor. The idea is that value off one individual like Bill Gates could be worth much more than value off several people's life put together. You got the point and the same is true for companies. For example, Apple has much more to lose when it comes to its reputation. Then a lesser known training institute. Then everyone in Sydney and I can get away with a few small mistakes. But Apple cannot. It's not a great example, but it fits the bill when I'm trying to say that the bigger you are, the more at stake for you in terms of reputation risk. Now, one last point and another cliche. People judge you for your mistakes. They always look for one wrong move of yours to wipe out entire good that you did throughout your life because for most of us, only bad needs count. But you might be asking, Why am I die aggressing from reputation? Risk? Why am I talking about life insurance? Why am I talking about Elon Musk turning out to be an evil? I guess the point I'm trying to being back home is that even if we can compute the exact losses pertaining reputation, can we be sure that it won't fluctuate in future? After all, all it takes is one wrong business decision and your reputation will sky knife. So how did they do it? How did the value something like a reputation, which is intangible? The question often repeatedly raised is that there is no point off valuing reputation differently because reputation is nothing but a goodwill. So how about goodwill? How about using goodwill interchangeably with reputation? After all, we've all heard about goodwill. And some of us perhaps, are also aware that goodwill, although being an intangible asset, is quantified by companies and is added to their balance sheet, so can be considered a goodwill Samos reputation. Let's just find out in the next section the case of Goodwill. What is a good will? How is it quantified? And how does it compare when it comes to using reputation interchangeably with goodwill? Can we do that? Can we not? In the next section will consider the case of goodwill 7. The Case of Goodwill: Welcome back. Let's try to understand what a goodwill is and what other differences and similarities between goodwill and reputation. How do you define goodwill? Goodwill is something that is rather easy to describe, but not that easy to define. It is nothing but the benefit and and want age off a good name. Good reputation, intellectual is. It's as well as the connections off a business, and this definitely is something quantifiable. All the goodwill is something that is intangible. You can not only quantify it, but also added in your balance sheet, of course, on the asset side in the balance sheet. Let's have a quick look at the top 10 companies in 2018 with the highest value of goodwill . No surprises there whatsoever, but let's try to understand the case of goodwill here. So what does it mean when we say that Amazon has a goodwill off 1 $50 billion? It means that if some other company were to buy out Amazon today, then it will have to shell out 1 $50 billion on top off all the assets of Amazon to purchase it simply a premium that needs to be paid if someone wants to acquire the brand Amazon. But then there's a bad news here. Goodwill cannot be used interchangeably with reputation. Reputation is what you do every day, but at the same time, good will only prove to be worthwhile when you sell the company class. Taken example. First in this example, company X Y Z was sold for $120 million but its network was only $80 million. So the $40 million extra paid for acquiring X Y Z is nothing but the word off goodwill. There is no question of reputation here, because reputation, if cannot be quantified, can also not be sold at the same time. If goodwill is not the same as reputation than what exactly are the differences between goodwill and reputation? We have already established. Goodwill is quantifiable, but reputation is non quantifiable. Reputation needs to be maintained every day, like a liability. Like a car you own, you have to maintain it on an ongoing basis. But good will at the same time, is an asset, as we saw in the previous example. Yes, so you add goodwill in your balance sheet, where you do not add reputation anywhere in your balance sheet, and it is supported by reputation capital. This is a very interesting concept, not something that you can prove with the help off some mathematical calculation. But reputational capital is something you add on an ongoing basis. So how do you define a reputational capital? You define it very loosely as a value off a company's reputation and is calculated as market value of the company in access off its liquidation value as well as its intellectual capital. So in other words, you have the network off your company. On top of that, you have the goodwill of your company, and on top of that, you have your reputational capital. That sort of adds up on an ongoing basis, and that's why it's a liability. You have to maintain it. You have to add it up on an ongoing basis. So the reputational capital actually cost toots the residue value off the company's intangible assets over an abo its stock off patents and know how. So you can also actually quantify reputational risk in a very loose terms as the range of possible gains and losses in reputational capital for a given phone. So now that you've learned about reputational capital. Let's move further towards the differences between goodwill and reputation, so goodwill helps in developing your business. Whereas reputation helps in retaining that business. This is a very critical difference between the two. If you have a good will, you have a good brand. You attract customers, and how do you retain them by managing a good image in the market? How do you quantify goodwill? It's nothing but some off all the intangible assets, whereas reputation by itself has no value whatsoever. But at the same time, if your reputation is under attack, it can lead to losses for you. Another major difference between goodwill and reputation. All the courts of justice and all the law books recognize the town goodwill. But reputation is not a recognized legal term. What does it mean? So if there are no events that occurred outside your organization that led to a tarnished reputation off yours, you cannot sue an external entity for the losses you incurred as a result off reputation, crisis. But if there is an external entity that caused you lost off your goodwill, you can very well go ahead and sue that company and this is the difference between a goodwill and reputation very crucial difference between both. You can purchase goodwill. Yes, you can. But at the same time, not everything can be bought by money. Something like reputation is never for sale, and this is exactly what we saw in the previous example of company X y Z as well, $40 million was paid extra for purchasing a crazy or, if you want by Amazon, $150 billion extra is what you will have to shell out two perches Amazon on top of its network. And lastly, this is exactly were having a quantifiable good will help you make money when you exit the business. In spite off all these differences, reputation and goodwill are inseparable, and they're directly correlated to each other. So you can't say that your goodwill is going upwards, whereas your reputation is going downwards. If there is a crisis to your reputation, your goodwill will get impacted for sure. So now that we have established that reputation and goodwill are inseparable and they're directly correlated to each other, it's time for another story. Now, this time you learn about how goodwill and reputation fall and rise together. You would also learn about the rule off top management in maintaining both reputation as well as goodwill. Now, this is a story that it's so interesting and so close to my heart. And this is also my fear restore in this entire course. And perhaps this is also a story on which you can even go out and make a Hollywood flick. So state young for one of the most interesting stories in this course baptism. 8. Story of Royal Bank of Scotland - Part 1: Welcome back. Let's dive right into the case off Royal Bank of Scotland about Royal Bank of Scotland. It's almost 300 year old institute, and this story is another story from the financial crisis of 7 2008 RBS By no measure with a small bank, in fact, it's a group of companies as well as bank. So it's a banking group. However, due to the events will be coming soon. RBS had to be rescued by government to protect it from falling on the conduct off. Its CEO and senior management was also found questionable will be covering that part as well. Anyone came to dive deeper had highly recommend reading this book by E and Fraser. So what is the story of Royal Bank of Scotland? Let's take a closer look. RVs made news globally by successfully completing hostile takeover of NatWest. Naturist was a bank that was twice the size off obvious, and as a result, off the acquisition, RBS climbed up the ladder and became second biggest bank in UK. In fact, just a near later RBS rank among the 10 top companies in the world. Obvious rapidly grew from there in the next seven years, it went on a buying spree and acquired 26 banks and increased its assets by four times. Now this kind off rapid pace off acquisition should have raised a red flag. But the world economy was booming between the period 2000 to 2007 so not many were actually raising any eyebrows. And obvious was able to go on a massive yet inorganic growth and therefore decided to acquire the Dutch bank ABN Ambro. And this proved to be inoculates hell for the bank and the biggest ever red flag for the stakeholders A, B and Amro. By no measure was a small bank, but it's still went ahead with the acquisition and as a result, RBS had become fifth largest bank by two dozen it yet something had already happened. UK government had to step in to keep it from falling because of the decisions are be a stuck during its rapid growth period and also the inaccurate measures off risks. At its end, RBS had to rebuild out and became a government entity with the beginning of here 2009. So by the time it doesn't nine arrived, RBS had completely transformed into a UK government own entity on. It also announced losses off £24 billion out of which £20 billion were attributed to the loss of goodwill. Now goodwill is an intangible asset, but it did India's massive losses to the bank. This is a classic example off the losses that a banker, Inca, as a result of losses and goodwill. Do you think that this kind of losses and goodwill would not have affected the reputation off the RBS group? You're wrong. Nobody was trusting RBS whatsoever. So how was their reputation getting affected? And how do we know that RBS was not just facing crisis to goodwill but also a crisis to reputation? Look at this craft. London Stock Exchange had beaten down the price off RBS group stock quite literally, and this goes on to prove that goodwill and reputation go hand in hand and are directly correlated to each other. Your goodwill goes down. That's intangible loss that you would have to take on your balance sheet, and as a result, off the crisis, your reputation, the market will show you your real face. Now you might be wondering, What is it that happened during 7 2008 that led to decimation off RBS, quite literally, in the very next Doctor will be looking into that in more detail. 9. Story of Royal Bank of Scotland - Part 2: welcome back. That's really understand what happened in 2000. Sound it that led to the decimation off RBS. RBS one decided to purchase A B and Amro as part of a consortium conducted due diligence on A B and M row, and this due diligence was carried out in May 2007. Now, due diligence is nothing but a process that is carried out by acquiring company to cross verify the world's off the pocket company. In September 2007 Northern Rock had already fallen as a result. Off the fall off Northern Rock, there was a widespread fear in the markets for economy to slip further because the financial crisis had already hit the rest of the world. The news about the duration off the Dutch bank Abyan Amro was spreading all around the markets. Still, RBS went ahead with its acquisition because of the confidence that RBS has been building up since its acquisition off NatWest Bank. Back in 1999 Obvious moralists relied upon the commentary off Fabian Amro. They did not conduct another round of due diligence on a B and Amro. This was a myopic action off RBS and it was also very widely criticized all around by the investors as well as other stakeholders, and this also proved to be a failure off senior management which will talk about very soon . Now six months is a very long period and anything can go wrong. Yet obvious decision to go ahead and purchase a BN was considered to be an irresponsible decision and because the market had deteriorated, there was a liquidity crunch around the world. Obvious was also facing a huge gap in capital required for regulatory purposes and for running a bank. Otherwise so, Army has decided to go to the market and raise money from its existing shareholders by issuing something called a rights issue. Its rights issue, off £12 billion was the biggest in the history of UK and understandably wasn't really greeted with a lot of enthusiasm by the investors. In other words, because off the goodwill off RB is going down along with the crisis to its reputation, there were absolutely no buyers off the stock off RBS on London Stock Exchange. It was a really eye opener for the bank's management, but as a result, UK government had to step in and recapitalized obvious and therefore saved it from falling . In Jan. 2009 Obvious reporting massive losses of £24 billion government had to further infuse capital and thereby increased its holding to about 70%. It is no surprise that the management faced rat off the investors, and as the result, shareholders voted against the proposed salary and bonus hikes for the banks executives. This also indicates, what kind of reaction does loss of goodwill attract? So loss of goodwill and reputation here is also a classic example off bad management, talking about the role of management in leading obvious to its disastrous fate. Let's start with the U 1999. Needless to say, that RBS was applauded and growing in confidence with each acquisition that started with that off NatWest in 1999. Fred Goodwin, who was instrumental in NatWest hostile takeover, was promoted to see you within a span of two years. But it was just the beginning. The banks, communications and actions were always found to be out of think, and this led to an air of mistrust surrounding every statement of RBS senior management. For example, in here 2006 the CEO publicly announced that Obvious has no further plans off acquisitions , only to prove himself wrong in the very coming year. And the same happened when Obvious was forced to reach out to stock markets with its rights issues because off its dwindling capital. As a result, the CEO off obvious friend Goodwin had earned very bad name in the market. By the time year 2009 arrived, Goodwin had to exit from RBS and right from being a hero for obvious. During the acquisition off, NatWest became a villain for the rest of the world, by the time obvious was acquired by the government of England. So this was the story off Royal Bank of Scotland, how it led to the losses of goodwill as villas reputation for the group. Now the story of RBS is still a fresh in the minds of many, especially those who lost their money on the stock off obvious. Let's just end the story here and finally get into the measurement part off reputation risk . So in the next two chapters will be looking at the qualitative and quantitative matters off , arriving at the losses that can be induced when reputation risk materializes. So stay June. I'll see you soon 10. Quantifying Reputional Risk-Qualitative Measures: Welcome back now that be a least a stage where we would be learning about quantification of reputation, risk? Let's also try to understand what the Basil Committee has to say about reputational risk. According to Battle Committee, A bag should have an assessment frame book in place to be able to understand that threat it could face, which could lead to reputation, crisis and at the same time have an action plan in place to be able to manage those reputation. Crisis evens in a bad way. Sam Bassett committee does not really explicitly covers any qualitative or quantitative matters that the bank and used for quantifying reputation risk losses. But it does prescribe having an assessment framework in place to be able to manage the crisis to reputation. Rapid is risk is a very unique risk because people that constitute the stakeholders off a bank are always prejudiced. In other words, your results are looked upon based on the notion that people already have on you as an organization, so your repetition is shaped outside your organization. But it is also a residual effect off. Your actions are your inactions. So in other words, reputation risk is a unique risk because it arises because off the enemy within. So what other practices followed in? The bank has said it follows qualitative as well as quantitative approaches. So in qualitative matters they use something called key risk indicators. And in quantitative matters, ANALITICO models are used, and both of these matters put together form the reputational risk assessment framework for a bank. Let's just learn about the qualitative measures for estimating losses and cardio to reputational risk. The qualitative measures begin with identification and finalization off the risk indicators . What are the key risk indicators? These are the indicators that back believe can help them in tracking their repetition and outer world, and also they will be able to measure them on an ongoing basis. Here are a few off the examples off those indicators that banks can opt for. Banks can try to assess and analyzed trends off complaints that it received from employees as villas from customers. Banks can also track what the social media platforms are talking about them. At the same time, what kind of news and blocks are written about the back the bank and also tried to quantify the velocity off adverse news flow in other words, the time taken by a negative information about the bank to travel from one part of the world to another. Similarly, the other indicators can be the ones surrounding regulatory and compliance aspects off its business and also the ones surrounding colds off attics, which the bank encourages its staff to follow. And there can be many such indicators that banks can opt for. So the primary reason again is to track and assess the reputation scale off a bank, and this is a very first step in a qualitative mattered. It is important to note here that there are no fixed number off indicators that a bank and include for tracking a bank and choose anywhere between about a dozen to all the way up to 50 off them. And these indicators chosen purely on the basis of a bank's unique business and out the world's perception on it. For example, if a bank has a distorted image because off recent penalty from regulator and the bank will be mindful of tracking all the indicators surrounding regulatory and compliance aspect off its business, So once these G risk indicators are shot listed, the next step is to form a risk assessment matrix. So what is a risk assessment matrix? It comprises off multiple quadrants. Each of them signify a particular range off probability and also impact. So the probability signifies the likelihood, often even Tuukka and the impact signifies the outcome, which can be measurable with help off the following aspects. The impact can be measured on the brand value off a bank, how the negative coverage can be attracted, or what can be the impact on the share prices off a bank, if any off the even materializes for them in near future, As in this summarized example shown with the dotted lines, the minor and major impacts off each quadrants are go against three measurable aspect brand value, native coverage and impact on back share price. There can be many such aspects which bank can include for assessment off impact off each, even under each quadrant. So the short listing off the risk indicators goes all the way to creation off a risk assessment matrix and then identifying the likely impact off each of those events that are short Lister. So this completes the qualitative matters for us. In the next chapter, we will becoming the more complex quantitative matters for measuring losses as a result, off repetition crisis statement, Doctor 11. Quantifying Reputional Risk-Quantitative Measures - Part 1: Let's not get into the quantity of the methods of assessing losses on the reputation risk as the name suggests, The method involves analytical approach, comprising multiple quantifiable damages from the world off mathematics as well. Lestat sticks thermally three kinds off analytical models, which are not only used for quantifying reputational risk but other types of risks as well . The 1st 1 is based on expert judgment or recommendations off other research based inputs from consulting and research companies. The second type of model is Fred, with input surrounding historical data and evens that occurred outside as well as inside the organization. Lastly, the combination of both models, commonly known as most defector models, is also implemented across the bank. And for every bank. This is the ultimate aim that they want to achieve. They want to reach to the level that they're able to build a multi effective advanced model . Let's not try to understand how these models are built in the simplest way, so I am trying to keep it as simple as possible so that those a few from non financial or non analytical background and also be able to pick up these concepts without any difficulty , as in the case off quality to matter where we started with identification off the risk indicators. The model building also begins with narrowing down on factors that go as inputs in the model. For further computation. Notice how some of these key risk indicators from the qualitative approach can also readily fit as quantifiable input factors. For example, negative news velocity. That is the time taken by a negative news to travel from one part of the world to another and number off time data security was breached in a given period of time. The next step involved assignment off severity rated that varies from one factor to another . For example, run on bank is a much savior and even, and if it takes place, it can lead to devastation. So therefore there would be higher rated that would be assigned to run on bank as a factor as compared to internal front. Lastly, the competition is carried out, factoring in probability as villas. Correlation among the shark listed factors. I'll explain about these in more detail sharply, so in order to keep it all simple, let's start with the two shortlisted factors among several others that are back needs to shortlist. That would go as inputs for these models. Let's call these factors as f one and not two now. This is not a Formula One race, by the way, as a next step rated is assigned to each off. The factors, the more weighted assigned to affect her will obviously lead to the fact that having much more impact on final results. These factors can be assigned weights in terms off decimal, as shown in this example, are in terms of per cent age. Their sum total must be cool 200% So after the shop listing off in good factors, which is step one, Step two is assignment off vintage. To each of these factors, the next step is to identify a probability or, in other words, likelihood off these factors or even struck. Probably. The assignment to these factors is almost similar to the one we saw in qualitative matter, where perceive reality is demonstrated with the help of vintage. Let's talk about correlation now. Correlation is a number between plus one and minus one, and it's commonly referred as correlation coefficient. The correlation coefficient is calculated statistically, and it represents the linear interdependence off two variables or sets of data. If the correlation coefficient between any two factors is one, it means there's a perfect correlation between those two factors. That is, if one factor goes up, then the other one will also go up to the same level as in the 1st 1 So if both are moving in the same direction, it means they're positively correlated. And if they both are moving in the same direction to the same level, it means they're perfectly correlated. The correlation is one, and similarly, if there's a negative correlation between any defector than if one goes down, the other one will go up. That is, it will go in the opposite direction and similarly minus one would signify, Ah, perfect negative correlation between any two factors. Then what do we make off zero correlation? A. Zero correlation signifies that there is absolutely no linkages or no linear interdependence between do variables, that is, movement in one factor does not impact movement in the other one whatsoever. It is important not here that all these risk factors actually are interdependent anyway, So the correlation between any of these two factors would always be greater than zero. In other words, impact in one factor would always lead to impact off the other factor as well. Therefore, in most of the cases, the factors are found to be interdependent Onley in positive manner. For the model inputs. More often than not, only positively correlated factors would go in tow. The eventual modeling, only those which have positive correlation are short listed on it makes sense as well. You don't want to factors that have negative correlation with each other, which means positive impact on one will lead to negative impact on another. Imagine a scenario where there's a run on bank happening, but at the same time stock prices of that bank going upwards, not possible. And that's why all these factors are always positively correlated. In order to keep it simple, I have decided not to go beyond this stage in quantitative matters. But I have added further steps in the pdf hand out with this lecture, and in that PDF and out, I have briefly provided further explanation off complex computations that go into modelling and have also added an assignment for you to do it yourself. Now it is important also to understand here that this modeling is not done manually. They're modeling Softwares that are implemented by banks that journal the data, and they provide all the output. But the assignment that I have provided you along with the examples in pdf are very simple . They are doable. You would be able to understand how modeling is done, how the calculation is done and how the results are interpreted. So I highly encourage you to go through the pdf. It's going to be just one or two page long. PdF, and you would be able to understand about quantitative methods. If you're really keen about learning those, if you're not this much of information, it's ultra sufficient for you to remain an expert in the field of quantification off reputational risk. But what about the three marble stabbing were talking about earlier? Let's not amount them one by one 12. Quantifying Reputional Risk-Quantitative Measures - Part 2: start with the expert judgment and external agencies model. In these kind of models, bags usually rely upon research outputs done by other consulting or research companies. As you can see in this example, research done by Wharton and they're finding can readily be used as input factors in the models. So these inputs are nothing of the quantification off the effects off reputational crisis on a bank. But these are the inputs from external agencies. What about expert judgement? Export judgment is taken from the top management in assigning probabilities weight, age, severity, etcetera, etcetera. There's a reason why all these folks are sitting at the top in a bank. They know a thing or two about risk. Management said. Their inputs also carry a lot of weight age when it comes to sharp listing the factors and assigning further probabilities and all those Barham eaters that going to the computation. What about models built on historical or real life hearings, Starting with a historical event or data? Historical events may include internal data. For example, number off data breaches over a given period of time are a number of times. Negative news was floating around in the market for them. So all these events become a reference point that can go as input in these models. And it does not really have to be internal only, for example, what happened in the case of Northern Rock and Royal Bank of Scotland. Those also are the external events that can be used as inputs that can go into these models . Let's just take an example. How much did R B A stock fell when it launched rights issue for urgently raising capital from existing investors? That can become a reference point here while they're looking to quantify the losses as a result, off reputation risk races. So the bank relies on its internal data as well as external real life events and, lastly, multi factor models. The multi factor models are the most complex models, and they comprise off features both from expert judgment as a less historical data models. So based on historical data and expert judgement inputs, the shock listed factors are assigned weights and computation usually involves methodologies of both the other two models, along with additional analytical processing on the data. Here is the example off two models in place nowadays, and these models help organizations in quantifying the losses as a result off reputational risk. Some of these models not just target banking and financial industry, but their products are also available for industries outside banking and financials, so hasn't said For the sake of simplicity, I've decided not to dive deeper into the models and provide handouts to those interested in learning more about quantification of this risk. Based on the feedback, I will add more videos on quantification diving deeper into matter ideologies. So please do not forget to let me know if you would like to learn more about quantification through another lectures, and I'll be happy to create and add them up in the course on an ongoing basis. Now we still haven't learned what is the output off these models. In the next chapter, we would be looking at What is the final result off each of these models? What is it that we get out of the framework in terms of mathematical results, and how can we interpret that? And how confident are we about those results? I'll see you soon 13. Quantifying Reputional Risk-Quantitative Measures - Part 3: So what is at stake? Thea Output off These analytical models will do all these banks with a fairly high confidence level about how much they will lose if any off the events affecting reputation occurs in near future. So this is what they get as the output off analytical models. Before we end the quantification section, I want to leave you the parting part about quantification off reputational risk. Do not let your soul be misled in believing that quantifying reputation risk is such an easy task, believe me. Mercy. The banks are not able to do it in the best way possible, as they usually do for other quantifiable risks such as credit market and operation risk. Because at the end of the day, a lot of these assumptions and back and forth between the qualitative and quantitative factors ski risk indicators and evens there only estimations, and it is still extremely difficult to measure this risk. And therefore it would always be impossible to estimate the scale off losses as a result off reputational risk materialization. As I said in the beginning, a bank and lose some bank and lose substantial and a bank and lose it all as a result of repetition risk. So in the upcoming section, we will be learning about how can a bank or financial from manage its reputation on it comprises off five major steps. Now, if you cannot really confidently measure your reputation, at least be able to manage it properly. You would also learn about why you should be managing to begin with the of course, why you should be managing it. Well. It might be a cliche, but you might already have also got the idea how important it is to manage your repetition . And if you have to manage it, who should be responsible for managing it? Stayed June copies. 14. 5 Steps of Managing Reputation. Why manage it and Who Should Manage Reputation?: reputation. Management is a five steps process you should be able to follow and implement all these five steps in the best way possible to be able to get the best results. It starts with knowing the extent off losses. Yes, measurement off reputation. Risk is not an easy task, but you can always take it or Francis from your goodwill. As I mentioned before, goodwill and reputation go hand in hand. So if you cannot really quantify your reputation, risk with full confidence, at least have your goodwill properly quantified. And take that as a reference for quantifying the reputation. Most of the banking and financial firms don't really have any quantitative methods in place to separately quantify reputational risk. But almost all of them actually have the quality that matters implemented to track and measure the reputation risk. So at least make sure that your qualitative ways off identifying tracking, measuring your repetition risk are in place. You should also know what is the current reputation off your form in the eyes off stakeholders, and for that, keep taking constant feedback from them. This, perhaps, is the most important step that needs to be followed up. Try to communicate what your farm stands for, but do not try to mislead them. Do not give them any false forecasts or any false, even updates. Make sure that your actions and your words are always in sync. Nobody likes to be misled, so if you're trying to manually it someone pretty much what politicians do. People are smart enough to figure that out, and once they know that you write to manipulate their perception, you definitely will not be able to gain their trust. So communicate. But do not manipulate and also be consistent in your communication. And always follow that up with your action. Keep contact with reality, and the feedback loop must always be open. You should also listen to the early warnings, the lead indicators that may come from internal employees, customers, stakeholders, news blog's social media platforms. Keep your eyes and ears open and make sure you're always listening to what the outer world has to say about your phone. You should have someone in charge in your company for monitoring the barrel meter off reputation, so you should have someone assigned a job off, identifying what are the possible threats their form can face on an ongoing basis. But why manage your reputation? It makes unlike a rhetorical question, but it's not. You should know why you're doing what you're doing, and you should manage your reputation because Mr Murphy said so. But about from that, there are millions of reasons that exists. And here are just a few of them. You should be managing your reputation because you can always get into bad deeds. Your conduct may be questionable any time. You may not even know what mistakes you're committing, so be mindful of what you're doing. You may also make bad decisions. Or maybe your processes in place require improvement and maybe just bad times. You just got unlucky. You were at the wrong place and at their own time factors. Trust is in short supply, and people question your authenticity all the time. They always tried to figure out what your intentions are, so therefore, maintaining transparency. Staying true to yourself and to your stakeholders is that most requirement when it comes to managing reputation and farms should also cover all the bases pertaining their image. Before taking any major decisions, they should use stress testing as a tool to produce imaginary scenarios and see if the repetition risk even crystallizes. What is it that the form stands to lose? Most importantly, can they survive or not? Also, with so many social media black farms flaring up every now and then, reputational risk is now at forefront among all the other risks. Being proactive is not even an option, but a necessity. So all these reasons put together give you a fair idea. Why is it so important to manage your reputation? And lastly, who should be managing the reputation? As I mentioned before, Reputation is going outside your organization so everyone knows about your organization will have an opinion about the reputation off your company, but who should be responsible for managing it? You are being judged at every step, so if you don't stand together, you'll fall individually, leaving no trace off your employing from behind. So every department is responsible for managing reputation off the phone or, in other words, everyone implied in the organization has the responsibility for managing reputation. Max is the story time. We will be looking into the story off SunTrust Banks, a US based banking group that was able to maintain its reputation even after dipping into crisis that originated internally. So state you include stock, diesel 15. Managed well by Suntrust Banks: So what is the story of some respect? Sentras thanks made a public statement about internal errors in accounting that leads to misleading reporting off their quarterly reports and also the same errors that they did in last quarter were causing further delay in producing next quarterly results. Central banks was a listed group and therefore any delay in producing their quarterly result could have caused unrest among the investors. So the institution addressed the issue immediately on it, communicated very openly with the public as well as its customers. They also took corrective actions by setting up impartial inquiry with the help of independent law firms and auditors. In other words, they were extremely transparent in what they were going to do and what is it that they identified in terms off errors internally? But the issue turned out to be much bigger than anticipated by Santos banks and the inquiry results pointed towards wrongdoings within the organization that included calculation errors as well as records off fake meetings that never took place. Even the US regulator, Securities and Exchange Commission, had initiated separate inquiry into the issue. Centrist was only anticipating this as a small accounting error, but it turned out to be much bigger than that. How centrist responded to the issue ensured that the damage be controlled to the minimum interested. A lot of things right. They were communicating timely with absolutely no delay. And they were giving the stakeholders a sense of feeling that nothing has been covered up internally, setting up off independent committee and publicly made commitment to extend full support to the process really help incoming the nose off investors. And they also took prompt actions against the responsible employees for the wrongdoings. And how was the reaction from the outer world the stock price did for but not to the alarming levels. The repetition was definitely stained. However, the overall goodwill off the farm remained intact. It needed lost any business nor any business partners. It is important here to note that the biggest reason for the success off SunTrust in containing any damage due to deterioration in a reputation waas that the top management was involved right from the beginning and was being extremely transparent, and they also took timely, consistent and corrective measures, an extended full support to any inquiry off extra emergencies and therefore this incident became a great example of how well manager reputation can help you save your business and also protect your phone from the deterioration of goodwill as a less reputation. Well, manage repetition has many benefits. If you're able to manage it well, you definitely will enjoy some advantages on a long run. But if you don't really manage it, then there are more disadvantages off a bad reputation than the advantages off a good reputation way will be looking into those. 16. Advantages and Disadvantages: that's looking to the advantages of a good reputation have disadvantageous off not maintaining a good reputation. As I mentioned before, people already have a notion about you. And if you stay in their good books, small mistakes off yours will definitely be avoided, and it will be much easier for you to maintain your reputation. So these are the advantages off a good reputation. You would be able to manage it in a proper manner, your customers and your business relationships. Your business partners will be a brand champion. They would advocate for you. You would definitely have a stronghold in the market, and there would be more investors looking to invest money in your company. And because you would have a good reputation, your cost of funding will come down. In other words, you would be considered trustworthy and credible. More and more lenders would be willing to lend you money, and therefore there would be lower cost of funding for you, not many lawsuits against you. Your stakeholders will remain loyal and at the same time your employees would love you. They will never have toe hang their head in shame because they work for you so these are some of the advantages little to look at. What other disadvantages. If you're not managing your repetition properly, you would start losing your business. And, of course, your employees the ones who were loyal to you earlier after the deterioration of your repetition would start quitting. And at the same time, because of the loss of goodwill, your business partners will start exiting as well. And that would also lead to increased costs of funding. Yes, your trustworthiness will skydive, and at the same time people will start believing that you're not credit worthy anymore. Not many lenders out there will be happy to lend you any money. You would start losing your market capitalization, which is nothing but the direct impact on your stock price that is, your stock prices will be falling on a consistent basis. If you're not doing things right, you would definitely attract lawsuits, penalties or litigations, and your regulators will definitely not be happy with you. And, yes, your image will be completely distorted not just locally, but maybe internationally, and you become a bad example, just like Northern Rock dead and just like RBS did. And because reputation is an everyday hustle all the good work, all the efforts that you have been putting in and maintaining a good reputation would get wiped out as a result of possibly a single human. So those were the differences between a good and a bad manager reputation. Let's now look at what is the difference between crisis management and a reputation management. And no, they're not the same. And at the same time we're does reputation fit in the scheme of things and how forms incorporate it as part of their strategy and strategic risk, so 17. Crisis v Reputation Management and Rightful place of Reputation: Despite common belief, crisis management is not repetition management repetition. Management is a proactive approach, whereas crisis management is a set off reactive actions in reputation management. A company is required to be transparent and honest. It must apologize that empathy and must admit to any wrongdoings that have been done internally or externally. Reputation management requires subtle ways. You have to be prudent and taking your actions and at the same time be very proactive. And that's how you manage your reputation. However, it is very unfortunate that many funds do not realize the difference between both. In fact, there isn't even enough literature on reputation risk because it is widely assumed to be a part of crisis management. Crisis management is nothing but a response to an unfortunate event. Or, in other words, it is a backward looking approach that Selves little to no purpose. But how do they both differ? What is the difference between crisis and reputation management? As I said before, one is proactive. The other one is a reactive approach, so you have to be proactive when you're managing your reputation. At the same time, prices are handled by only a few experts, reputation management, on the other hand, is an everyday process, comprising acts off each and everyone in the organization. Crisis management is a short term move to save the organization from two days troubles. But reputation risk is a collection off strategic actions that an organization takes in order to make sure that they remain crisis proof right from the beginning. But talking about strategy, let's see how strategy and reputation mingle together. One of the very encouraging signs that I have been seeing off late is that reputation has started fitting into strategic risk management framework off organizations. In other words, the forms have suddenly started realizing the importance off intangible risks, including reputational risk. So more and more board of directors when they talk about strategic risk. They also include reputational risk as part of strategic risk, which I believe is the rightful place off reputational risk. Because if you can manage your strategic risks properly, your reputation risk will also be taken care off. So whatever, going to learn next, we're almost nearing the end off this course, we would be looking into what are the characteristics off reputation, risk and final thoughts on repetition. Risk your thoughts and my thoughts 18. Essence of Reputational Risk: Firstly, I would like to ask you, What do you think is the characteristic of repetition risk? Do you think that it's a specific risk and you can define it? Measure it in a very tangible manner. Are do you think it is really hard to quantify? Or maybe you have a different point of view on reputation Risk? Maybe you think that reputation risk does not even exist on its own. Or maybe you think that reputational risk is not a risk. It's just a resident. Effect off other risks. So take a moment. Decide what your final thought about reputation, risk ills. It doesn't really matter whether you chose Option one option to or option three, because all the three views put together captured the essence of repetition risk. Yes, it's a difficult risk. Yes, it can never be a standalone risk on. Yes, there are other risks that can lead to the rising off reputational risk. So here's a parting note on reputation risk that one needs to keep in mind. Repetition is a magnifying glass for your bank or your organization. In other words, perception off the stakeholders is everything. You have to maintain it. There are no fixed ways off, measuring or managing your reputation, so you will have to find your own ways and means that work in your organization and that are tailor made for your organization in order to measure as well as manage your reputation . It is a fragile risk. You must know the sources from which your reputation can get impacted on also monitored them on an ongoing basis. And lastly, never forget what the old man said. It takes efforts off multiple number off years to build your reputation, but all it takes is one wrong move, and that's it. Your entire at first in managing the repetition will be gone. And if organizations would remember it, they will do things differently. Perhaps Northern Rock would have done things differently. Perhaps Royal Bank of Scotland could have handled the crisis differently. So it's very important to keep in mind that reputation is everything. And this is exactly the hypothesis we started, of course, with so now, in the end, we would be seeing what is it that recovered throughout this course 19. Summary & Thank You Note!: congratulations. You are now one of the very few on this planet Earth who know a lot about reputational risk and perhaps can also claim to be an expert in this area. So what is it that we learn through our discourse? We started off with an understanding that reputation risk is a terminal risk. In other words, it is one of those risks if my dear lives can lead to decimation of reform. And we also saw a few bad examples as well as some good examples about the quantification of dis risk. We try to learn what are are the estimation is that going to place in measuring losses that can arise as a result off reputational risk materialization. But at the same time, we also understood how difficult it is to quantify something as intangible as repetition risk. We also try to understand what other similarities between repetition and goodwill and at the same time, what are the differences between crisis management and reputation management? We also learned that reputation and goodwill go hand in hand, whereas reputation management is a strategic move as compared to crisis management, which is just a technical and shortly move. We also learned that nowadays organizations have started putting reputation risk inside strategic risk frame book. So in a nutshell, we learned about repetition risk right from the definition measurement management all the way to wear the threat in the organization's off today's era. Thanks a lot for being with me throughout this course. I hope you did learn a few things out of it. I do really want to know what your feedback is. What do you think that I can improve and what do you think that I missed out on this course ? I hope I'll see you very soon. So stay happy, stay healthy and stay aware off reputation. Risk not just for your company, but for yourself as well.