Below are two situations, each describing a certain risk in banking. For each situation:

1. Identify the risk from the banks point of view, i.e. name the risk.
2. Outline a scenario in which the risk materializes, and describe how the bank is affected. Use the balance sheet numbers if provided.
3. Outline one (1) way in which the bank may mitigate the loss associated with the risk scenario from b. Use the balance sheet numbers if provided.

1. Dust Bank has the following balance sheet:

Assets		Liabilities
Cash	20	Deposits	120
Short-term government securities	50	Long-term debt	20
Loans	100	Subordinated debt (convertible)	20
Other assets	20	Equity	30

Over the past few years, Dust Bank has undercut competition in the lending market by offering low interest spreads. Its entire loan portfolio consists of loans to retail stores that only have a physical presence, i.e. the borrowers have no online sales. Today, a global pandemic leads to the mandatory closing of the physical stores.

2. Three executives of Palladium Bank are involved with laundering money for a European crime organisation. The money laundering operation spans from the Baltic to the Caribbean, and features abandoned Ferraris, 10-carat diamonds and 600 kg of banknotes.

3. County Bancorporation is a bank in a small town. It reports the following balance sheet:

Assets		Liabilities
Cash	30	Deposits	125
Government securities (Short-term)	40	1-month CDs	100
Corporate loans	140	Long-term debt	30
Other assets	70	Equity	25
Total	280	Total	280

The bank relies extensively on 1-month CDs for funding. These are certificates of deposit with a 1- month maturity. In the case of County, all its CDs are sold each month to a single investment company named Regional Invest. Today, Regional Invest files for bankruptcy, and the 1-month CDs mature in 20 days.