Risk aggregation is the process of combining and evaluating various individual risks to determine an entity’s overall risk exposure. This technique involves systematically collecting, analyzing, and consolidating data on different types of risks, such as market, credit, operational, and liquidity risks. By viewing risks holistically, financial institutions can gain a comprehensive understanding of their total risk profile and its potential impact on capital adequacy. Effective risk aggregation is crucial for robust risk management and regulatory compliance.
Context
In the evolving digital asset landscape, risk aggregation presents unique challenges due to the novel nature of crypto assets and decentralized protocols. News often discusses the difficulties financial institutions face in integrating crypto-specific risks into their existing aggregation frameworks. Regulatory bodies are increasingly focused on requiring comprehensive risk aggregation practices from firms dealing with digital assets to ensure financial stability and consumer protection.
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