You are the senior risk manager at a global investment bank. Your company has announced to its shareholders a target of significantly increasing its share of a major market. One of your most important clients in this target market has asked for a large risk exposure limit increase. Following normal procedures for determining risk exposure limits$,$ you ask analysts in your risk management department to examine the request. Their conclusion is that the risk exposure limit requested by your client is $2\mathrm{.}5$x the risk exposure limit that would be appropriate given this client$$s financial position.

The relationship officers assigned to the client have strongly recommended that the increased limit be approved. In their recommendation, they have the support of their senior managers, who add that approving the request from such an important client would go a long way toward reaching the company$$s market share target, and along with it$,$ bigger bonuses for the bank$$s employees. They also mention that approving the request would improve the sometimes strained relationship between the client relationship department and risk management department. In addition, the bank$$s earnings would likely be higher and the bank$$s stock price should rise. They add that the bank has previously gone beyond its normal limits for this client, and has been rewarded with timely returns to normal limits$,$ as well as with additional business.

For its part, the client has suggested that other banks are more than willing to give it all of what it wants if your bank does not. However, and as noted, the current request is for a much bigger extension beyond the normal risk exposure limits than in the earlier cases. The earlier limit extensions did not reach your level because they were considerably smaller than the current request. You have the authority to either grant final approval or to reject this request. What would you do$,$ and why? In answering the $$why$$ part, please discuss the major positives and negatives of approving or rejecting the request, and what factors, both internal and external, were important in reaching your decision.