Banking industry has witnessed dramatic losses during the past decade. Firms that had been performing well suddenly announced large losses due to credit exposures that turned sour, interest rate positions taken, or derivative exposures that may or may not have been assumed to hedge balance sheet risk. In response to this, commercial banks have almost universally embarked upon an upgrading of their risk management and control systems. Knowledge management is a new branch of management for achieving breakthrough in business performance through the synergy of people, process and technology. Its focus is on the management of change, uncertainty and complexity. The paper highlights the issues about knowledge management which acts like a key force in a banking system for proper maintenance and integration, it can act as a source of power for the banks' major financial decisions because of its dynamic nature. This paper further discusses the various forms of risks in the banks with specific reference to market risk and also provides knowledge based solution to the banks to manage them so that they can achieve developmental results, increase operational flexibility and further can create desire and motivation among workforce which can also in talent retention, the major concern of organization today.
