Every financial product poses a risk to any investor. In the case of banks, there is a tool that improves its own transparency by making it easier for investors to know the risk they face. This tool is called the traffic light.
As a general rule, financial products according to this transparency tool are classified into six risk levels. Something that all credit and financing entities are required to include in their documents. Therefore, whenever we want to receive financial aid in the form of a loan or mortgage, this process will be subject to a level of risk.
The traffic light of the risk
Banking entities can classify these different levels of risk in two ways: by colors or by numbers.
- Colors. Through a color scale banks can establish that their financial products – be it a loan or a mortgage – pose a greater or lesser risk. A scale that goes from the color green, which represents the lowest risk; even the red color that is the most risky financial product.
- Numbers. Another option is to classify the risks of financial products from 1 to 6; the latter being the most risky.
Risk for financial products
The banks themselves are responsible for establishing the risk of their financial products; always following the rules of the CNMV (National Securities Market Commission); who establishes several criteria to categorize the risks.
Based on these pre-established guidelines, all financial products can be categorized and grouped more or less according to risk. Therefore, bank deposits, as well as savings insurance and pension plans, are at the lowest level of risk.
On the other hand, there would be those financial products that involve a little more risk but without reaching the last level. Here we would talk about products such as debt. And finally, the products with the highest risk for clients and investors would be the shares or participations.
In general, it is important to take into account the risk of acquiring one of the financial products available in the market; Be it a mortgage, a payday loan or an online product. Whenever we seek to make an investment there is a level of risk, however small.