What type of relationship can create third-party risk for banks?

Vendor partnerships can create third-party risk for banks because these relationships involve reliance on external entities to provide services or products essential to bank operations. When banks engage with vendors, they must ensure that these parties adhere to compliance standards, data security protocols, and regulatory requirements. Deviation from these expectations can lead to financial loss, reputational damage, or regulatory scrutiny for the bank.

In contrast, while customer-banker interactions can impact customer satisfaction and retention, they do not directly create third-party risk since the bank is not reliant on an outside entity in these situations. Employee management styles affect internal operations and culture but are not considered third-party aspects. Community outreach programs, while important for corporate social responsibility, do not inherently involve third-party risk unless they necessitate partnerships with external organizations, but this is not typically the focus of compliance training related to risk management.

Understanding the intricacies of vendor partnerships and the potential risks they carry is crucial for banks to maintain compliance and secure operations.