Capital One 2012 Annual Report Download - page 110

First, we seek to mitigate liquidity risk strategically and tactically. From a strategic perspective, we have
acquired and built deposit gathering businesses and significantly reduced our loan to deposit ratio. From a
tactical perspective, we have accumulated a sizeable liquidity reserve comprising cash, high-quality,
unencumbered securities, and committed collateralized credit lines and conduit facilities. This combination of
funding and liquidity sources facilitates a diverse access to multiple markets and liquidity sources.
Second, we recognize that we are exposed to cyclical changes in credit quality. Consequently, we try to ensure
our credit portfolio is resilient to economic downturns. Our most important tool in this endeavor is sound
underwriting, using what we deem to be conservative assumptions. In unsecured consumer loan underwriting, we
generally assume that loans will be subject to an environment in which losses are higher than those prevailing at
the time of underwriting. In commercial underwriting, we generally require strong cash flow, collateral and
covenants and guarantees. In addition to sound underwriting, we continually monitor our portfolio and take steps
to collect or work out distressed loans.
Third, we recognize that compliance is more complex and that regulatory and consumer expectations have risen.
In response, we have been and will continue to expand the scope and intensity of our compliance and consumer
protection activities including developing requirements, approving new products, establishing procedures and
controls, training staff and testing the effectiveness of business controls and the overall program.
Fourth, we recognize that reputation risk is of particular concern for financial institutions as a result of the
aftermath of the recent financial crisis and economic downturn, which has resulted in increased regulation and
widespread regulatory changes. Consequently, our Chief Executive Officer and executive team manage both
strategic and tactical reputation issues and build our relationships with the government, media and other
constituencies to help strengthen the reputations of both our company and industry. Our actions include taking
public positions in support of better consumer practices in our industry and, where possible, implementing those
practices in our business.
Fifth, we recognize the criticality of managing operational risk on a day-to-day basis and have expanded our
approach to operational risk management based on the growth and complexity of the company. We are
supporting our first line of defense associates with the appropriate operational risk management policy,
standards, processes and tools to enable the delivery of safe, sound customer and client experiences.
Finally, we recognize that maintaining a strong capital position is essential to our business strategy and
competitive position. We also recognize that regulatory and market expectations for the amount and quality of
capital are rising. Understanding and managing risks to our capital position is an underlying objective of all our
risk programs. Stress testing and economic capital measurement, both of which incorporate inputs from across
the risk spectrum, are key tools for evaluating our capital position and risk adjusted returns. We also consider
risks to our reputation and to our ability to access capital markets as part of our process for evaluating our capital
plans. See “MD&A—Capital Management” for additional information on our capital adequacy and strength.
Risk Management Roles and Responsibilities
The Board of Directors is responsible for establishing our overall risk framework, approving and overseeing
execution of the Enterprise Risk Management Policy and key risk category policies, establishing our risk
appetite, and regularly reviewing our risk profile.
The Chief Risk Officer, who reports to the Chief Executive Officer, is responsible for overseeing our risk
management program and driving appropriate action to resolve any weaknesses. The risk management program
begins with a set of policies and risk appetites approved by the Board that are implemented through a system of
risk committees and senior executive risk stewards. We have established risk committees at both the corporate
and divisional level to identify and manage risk. In addition, we have assigned a senior executive expert to each
of eight risk categories. We refer to these experts as risk stewards. These executive risk stewards work with the
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