Capital One 2014 Annual Report Download - page 106

protections are in place for the safety and soundness of the Company. 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.
Support with the Right Culture, Talent and Skills
The right culture, talent and skills are critical to effective risk management. The activities and actions specified in
our risk framework are supported with the right culture to ensure that both the spirit and the letter of the risk
management action are pursued. Skills necessary to effectively manage risk are reinforced through performance
management systems. When needed, risk talent is augmented through recruitment of industry experts as well as
training and development of internal associates.
Enable with the Right Data, Infrastructure and Programs
Data, infrastructure and programs are key enablers of our overall risk management processes and practices. These
core requirements enable effective risk modeling, efficient first, second and third line risk activity performance and
cross-line interaction. In addition, effective program design of each risk category is regularly assessed to ensure risk
practices continue to evolve with leading industry practice and continue to interact across categories as desired for
a strong overall risk management program.
Risk Appetite
Risk appetite refers to the level of risk our business is willing to take in pursuit of our corporate business objectives.
The Board of Directors approves our risk appetite including specific risk limits where applicable. While first line
executives manage risk on a day-to-day basis, the Chief Risk Officer provides effective challenge and independent
oversight to ensure that risks are within the appetite and specific limits established by the Board of Directors. The
Chief Risk Officer reports to the Board of Directors regularly on the nature and level of risk across all eight risk
categories. In addition to his broader management responsibilities, our Chief Executive Officer is responsible for
developing the strategy and mission of our organization, determining and leading our culture, and reviewing and
providing input into our risk appetite.
We have a defined risk appetite for each of our eight risk categories that is approved by our Board of Directors.
Stated risk appetites define the parameters for taking and accepting risks and are used by management and our Board
of Directors to make business decisions. We communicate risk appetite statements, limits and thresholds to the
appropriate levels in the organization and monitor adherence.
Risk Categories
We apply our Risk Framework to protect our company from the eight major categories of risk that we are exposed to
through our business activities. Our eight major categories of risk are:
•Compliance Risk: Compliance risk is the risk to current or anticipated earnings or capital arising from violations
of laws, rules, or regulations. Compliance risk can also arise from nonconformance with prescribed practices,
internal policies and procedures, contractual obligations, or ethical standards that reinforce those laws, rules,
or regulations;
•Credit Risk: Credit risk is the risk of loss from an obligor’s failure to meet the terms of any contract or otherwise
fail to perform as agreed;
• Legal Risk: Legal risk represents the risk of material adverse impact due to: new and changed laws and
regulations; interpretations of law; drafting, interpretation and enforceability of contracts; adverse decisions or
consequences arising from litigation or regulatory scrutiny; the establishment, management and governance of
our legal entity structure; and the failure to seek or follow appropriate Legal counsel when needed;
84 Capital One Financial Corporation (COF)