Bank of Montreal 2004 Annual Report Download - page 62

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BMO Financial Group Annual Report 200458
MD&A
Management’s Discussion and Analysis
policies, standards and procedures are continually reviewed
to ensure that they provide effective and superior governance
of our risk-taking activities.
Risk limits, which define BMO’s risk appetite, are reviewed
and approved annually by Risk Review Committee for:
•
credit and counterparty risk – limits on country, industry, port-
folio products/segments, group and single name exposures;
•market risk – limits on Market Value Exposure (MVE),
Earnings Volatility (EV) and stress testing; and
•liquidity and funding risk – limits for liquid assets, liability
diversification, credit and liquidity commitments, asset
pledging and cash flow mismatches.
These risk limits generally encompass both on and off-
balance sheet arrangements.
Individual risk committees establish and monitor comprehen
-
sive risk management limits consistent with the Board-approved
limits. Loss limits are also in place to provide an early warning
mechanism to effectively address potential loss situations.
In each line of business, management ensures that governance
activities, controls and management processes are consistent
with risk management policies and corporate standards.
Enterprise-Wide Risk Management
BMO Financial Group has an enterprise-wide capability to
recognize, understand, measure, assess and manage the risks
taken across the organization. These risks are classified
as credit and counterparty, market, liquidity and funding,
operational, and business risk due to earnings volatility.
Our risk framework guides our risk-taking activities and
ensures that they are aligned with our clients’ needs, our share-
holders’ expectations and regulatory requirements. It provides
not only for the direct management of each individual risk type
but also for the management of risks on an integrated basis.
The framework is built on the following elements: compre-
hensive risk governance, effective processes and models, and
qualified risk professionals.
Comprehensive Risk Governance
BMO’s risk governance structure promotes making sound
business decisions by balancing risk and reward. It promotes
revenue-generating activities that are consistent with our
risk appetite and standards, and drives the maximization of
total shareholder return.
Our comprehensive risk governance structure (see box
below) includes a body of corporate policies approved by the
Board of Directors. These and subordinate risk management
Comprehensive
risk governance
Enterprise-Wide
Risk Management
Qualified risk
professionals
Effective processes
and models
Ronald G. Rogers
Deputy Chair, Enterprise Risk and Portfolio
Management, BMO Financial Group
Risk Review Committee of the Board of Directors (RRC) assists the Board in fulfilling its oversight responsi
bilities in relation to BMO’s identification and
management of risk, adherence
to internal risk management policies and procedures, and compliance with risk-related regulatory requirements.
The President and Chief Executive Officer (CEO) is directly accountable to the Board for all of BMO’s risk-taking activities. Risk Management Committee and
its sub-committees and Enterprise Risk and Portfolio Management support the CEO.
Risk Management Committee (RMC)
, BMO’s senior risk committee, reviews and discusses significant risk
issues and action plans that arise in executing
the organization’s strategy. RMC ensures that risk oversight and governance occur at the highest levels of management.
RMC sub-committees have oversight responsibility for management strategy, governance, risk measurement and contingency planning. RMC and its
sub-committees
ensure that the risks incurred across the
organization are
consistent with strategy and are identified, measured, monitored and reported
in
accordance with policy and within delegated limits.
Enterprise Risk and Portfolio Management (ER&PM) encompasses credit adjudication, risk management and audit functions. It ensures consistency of risk
management practices and standards throughout the enterprise. ER&PM facilitates a disciplined approach to risk-taking through the execution of transactional
and portfolio management, policy formulation, risk reporting, modelling, vetting and risk education responsibilities. This ensures corporate objectives are met
while risks taken are consistent with BMO’s risk appetite.