Bank of Montreal 2010 Annual Report Download - page 78

MANAGEMENT’S DISCUSSION AND ANALYSIS
MD&A
Further strengthen our risk management practices by expanding
our capabilities and pursuing continuous improvement.
• Reinforced our risk foundation which includes the three-lines-of-
defence approach in place across the enterprise.
• Strengthened our stress testing capabilities.
• Strengthened our risk capital management practices.
• Advanced our talent management strategy by upgrading the skills
of our risk management professionals, delivering risk training across
the enterprise and strengthening performance management.
• Defined levels of skill and competency in risk management
to help ensure that our people are assigned to roles that suit
their capabilities.
Proactively manage our impaired loan portfolio to maximize
its potential and minimize future credit losses.
• Expanded roles and added resources to effectively manage
the portfolio.
2010 Group Objectives and Achievements
Manage risk effectively in the changing economic environment.
• Delivered strong credit performance with significantly lower credit
losses year over year.
• Managed market risk positions without significant volatility.
• Reduced exposure to certain run-off portfolios.
Work with the operating groups to advance new business
initiatives consistent with our risk appetite.
• Worked with our operating groups to reinforce our risk culture and
make risks more transparent.
• Worked within our independent oversight framework and our risk
appetite limits to meet our customers’ needs.
Gross impaired loan formations
decreased in 2010, reflecting
better economic conditions.
2010200920082007
Gross Impaired
Loan Formations ($ millions)
588
2,506 2,690
1,525
Gross impaired loan balances
remained elevated due to the
lingering effects of the recession.
* Includes $302 million of balances
related to the acquisition of a
U.S. bank’s assets that are covered
by an FDIC loss share agreement.
2010*200920082007
Gross Impaired
Loan Balances ($ millions)
3,297 3,221
2,387
720
Specific provisions for credit
losses were lower in 2010,
reflecting better economic
conditions.
2010200920082007
Specific Provision
for Credit Losses ($ millions)
1,543
1,049
1,070
303
The total provision for credit
losses is reflective of our
position in the credit cycle.
2010200920082007
Total Provision
for Credit Losses ($ millions)
353
1,330
1,603
1,049
Framework and Risks
us maintain our solid financial position. We continue to expand our risk
management infrastructure, build our capabilities and pursue continuous
improvement while actively benchmarking our capabilities against risk
management best practices. We believe that the steps we have taken,
and the initiatives we continue to pursue, have positioned us appropri-
ately to move forward and execute our strategy.
Our enterprise integrated risk management framework includes
our operating model and our risk governance structure, both of which
are underpinned by our risk culture. Our framework is predicated on
the three-lines-of-defence approach to the management of risk. This is
fundamental to our operating model. The first line of defence in our
management of risk is our operating groups, which are responsible for
the risks in their business. Their mandate is to identify suitable business
opportunities within our risk appetite and to adopt strategies and
As a diversified financial services company active in a number of
businesses, managing risk is integral to our operations. A disciplined and
integrated risk management approach is essential to building competitive
advantage and stability for our enterprise. It is intended to provide
appropriate and independent risk oversight across the enterprise. It also
requires that the Risk Management Group works with our lines of business
to create transparency and maintain open communication
.
The impact of the economic downturn has lessened somewhat
over the past year, although some sectors of the economy continue
to experience the lingering effects of the recession. BMO has continued
to exhibit the strong risk discipline that has served our customers
and stakeholders well. While we and the financial services industry
have learned lessons from the recent economic challenges, the prudent
risk strategy that we built upon over the past several years has helped
76 BMO Financial Group 193rd Annual Report 2010