a. Policy risk arises due to
alteration in policies of the government, the bank and its counterparties.
Policy risk become more apparent when there is frequent changes in different
policies relating to investment, borrowing, foreign currency, gold stock, supervision
bylaws, etc.
b. Reputation risk is a possibility
that the bank’s goodwill would be degraded in terms of fulfilment of its
responsibilities toward the public, employees, stakeholder and the entire
economy. Reputation risk becomes more prone when the bank becomes unable to
manage all the above mentioned risk proactively and systematically.