Banks as financial institution are associated with some degree of risk, that is to say that risk and banks are interwoven they cannot be separated.

Banks have always engaged in risk taking through maturity transformation borrowing short and long term loans. Contrary to the general view that risk taking in banks, or in any business activity as solely led to corporate failure, fear of these potential losses may prevent them from engaging in certain activities which may turn out to be very profitable; Isenmila (2002). Banking is in existence because of risk taking and the industry is booming because they have managed their risk, they take risk such as deposit, given loans and advances as well as investing in bills and other security, bank continuously engaged in risk taking even though the embodied liabilities and assets very in their risk. Risk of bank can be classified into two broad categories; fraud risk and market risks.

Fraud is a deliberate deception, trickery or cheating for unlawful gain through theft, defalcations and embezzlement. Frauds result in the largest losses to depositors and other creditors including deposit insurance agencies. They are rampant pervasive and the biggest single cause of bank failures in the United States of America during the 1959/1971 was due to fraud and irregularities. Hill (1975) also found that 88% of the 67 failures during 1960 to 1994 was due to improper loan defalcations, embezzlement and manipulation.

Adewonmi (1986) observes that of all the various problems confronting Nigerian banking industry today, that fraud is easily the most intractable. Fraud therefore, is a “cankerworm that has eaten deep into the fabric of the present banking industry.

The second broad category of bank risk is market risks. This takes many forms. It comprises of all exposures t6hat subject the bank to the prospect of loss and hence the weakening of capital resources. As pointed out in another study, Nwankwo (1989) it is the pervasiveness of these risks and the failure of the market to effectively control them that explains why banks are more heavily regulated than any other commercial or industrial undertaking.

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