Banks set risk limits for several reasons:
* To control and minimize a bank's current risk exposure: This helps in managing and mitigating existing risks.
* To allocate risks to business units: This ensures that risks are managed at appropriate levels within the organization.
* To keep risk within tolerance levels: This ensures that the bank's overall risk exposure does not exceed its risk appetite.
Setting these limits is a proactive measure to ensure that the bank operates within its risk capacity and is prepared for potential future risks.