Capital One 2012 Annual Report Download - page 113

Primary Risk Categories
Below we provide an overview of how we manage our eight primary risk categories. Following this section, we
provide detailed information and metrics about three of our most significant risk exposures: credit, liquidity and
market.
Credit Risk Management
The Chief Risk Officer, in conjunction with the Consumer and Commercial Chief Credit Officers, is responsible
for establishing credit risk policies and procedures, including underwriting and hold guidelines and credit
approval authority, and monitoring credit exposure and performance of our lending-related transactions. These
responsibilities are fulfilled by the Chief Consumer Credit Officer and the Chief Commercial Credit Officer.
Division Presidents are responsible for managing the credit risk within their division and maintaining processes
to control credit risk and comply with credit policies and guidelines. In addition, the Chief Risk Officer
establishes policies, delegates approval authority and monitors performance for non-loan credit exposure entered
into with financial counterparties or through the purchase of credit sensitive securities in our investment
portfolio.
Our credit policies establish standards in five areas: customer selection, underwriting, monitoring, remediation,
and portfolio management. The standards in each area provide a framework comprising specific objectives and
control processes. These standards are supported by detailed policies and procedures for each component of the
credit process. Starting with customer selection, our goal is to generally provide credit on terms that generate
above hurdle returns. We use a number of quantitative and qualitative factors to manage credit risk, including
setting credit risk limits and guidelines for each of our lines of business. We monitor performance and forecasts
relative to these guidelines and report results and any required mitigating actions to the Credit Policy Committee
and to the Audit and Risk Committee of the Board.
Liquidity Risk Management
The Chief Financial Officer is responsible for managing liquidity risk. We assess liquidity strength by evaluating
several different balance sheet metrics under severe stress scenarios to ensure we can withstand significant
funding degradation in both deposits and capital marketing funding sources. Management reports liquidity
metrics to the Asset/Liability Management Committee monthly and to the Finance and Trust Oversight
Committee of the Board of Directors no less than quarterly. Any policy breach in a liquidity limit will result in
the activation of the Liquidity Contingency Funding Plan and is required to be reported to the Treasurer as soon
as it is identified and to the Asset/Liability Management Committee within 48 hours. Detailed processes,
requirements and controls are contained in our policies and supporting procedures. We continuously monitor
market and economic conditions to evaluate emerging stress conditions with assessment and appropriate action
plans in accordance with our Liquidity Contingency Plan.
Market Risk Management
The Chief Financial Officer is responsible for managing market risk. We manage market risk exposure centrally
and establish quantitative limits to control our exposure. We define market risk as the risk that our earnings and/
or economic value of equity may be adversely affected by changes in market conditions, including changes in
interest rates and foreign currency exchange rates, changes in credit spreads and price fluctuations and changes in
value due to changes in market perception or the actual credit quality of issuers. Market risk is inherent in the
financial instruments associated with our operations and activities, including loans, deposits, securities, short-
term borrowings, long-term debt and derivatives.
The market risk positions of our banking entities and our total company are calculated separately and in total and
are reported in comparison to pre-established limits to the Asset/Liability Management Committee monthly and
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