Capital One 2015 Annual Report Download - page 93

74 Capital One Financial Corporation (COF)
Liquidity Risk Management
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 sizable
liquidity reserve comprised of cash, high-quality, unencumbered securities, and committed collateralized credit lines. We also
continue to maintain access to the secured and unsecured markets through ongoing issuance. This combination of stable and
diversified funding sources and our stockpile of liquidity reserves enables us to maintain confidence in our liquidity position.
The Chief Risk Officer, in conjunction with the Chief Market and Liquidity Risk Officer, is responsible for the establishment of
liquidity risk management policies and standards for governance and monitoring of liquidity risk at a corporate level. The Chief
Financial Officer is accountable for the management of 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 idiosyncratic,
and market wide and combined liquidity stress scenarios. Management reports liquidity metrics to appropriate senior management
committees and our Board of Directors no less than quarterly. We continuously monitor market and economic conditions to evaluate
emerging stress conditions with assessment and appropriate action plans in accordance with our Contingency Funding Plan.
Market Risk Management
We recognize that interest rate and foreign exchange risk is inherent in the business of banking due to the nature of the assets and
liabilities of banks. Banks typically manage the trade-off between near-term earnings volatility and market value volatility by
targeting moderate levels of each. In addition to using industry accepted techniques to analyze and measure interest rate and foreign
exchange risk, we perform sensitivity analysis to identify our risk exposures under a broad range of scenarios. Investment securities
and derivatives are the main levers for the management of interest rate and foreign exchange risk.
The Chief Risk Officer, in conjunction with the Chief Market and Liquidity Risk Officer, is responsible for the establishment of
market risk management policies and standards and for governance and monitoring of market risk at a corporate level. The Chief
Financial Officer is accountable for the management of market risk. We manage market risk exposure, which is principally driven
by balance sheet interest rate risk, centrally and establish quantitative limits to control our exposure. Market risk is inherent in the
financial instruments associated with our business 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 Committee monthly and to the Risk Committee of the Board of Directors
no less than quarterly. Management is authorized to utilize financial instruments as outlined in our policy to actively manage
market risk exposure.
Operational Risk Management
We recognize the criticality of managing operational risk on a day-to-day basis and that there are heightened expectations from
our regulators and our customers. We have implemented appropriate operational risk management policies, standards, processes
and tools to enable the delivery of high quality and consistent customer experiences.
The Chief Operational Risk Officer is responsible for establishing and overseeing our Operational Risk Management Program.
The program establishes and enforces requirements and practices for assessing the operational risk profile, executing key control
processes for select operational risks, and reporting of operational risk results. These activities are executed in accordance with
Basel II Advanced Approaches requirements.
Reputation Risk Management
We recognize that reputation risk is of particular concern for financial institutions as a result of the aftermath of the financial crisis
and economic downturn, which has resulted in increased scrutiny and widespread regulatory changes. We manage both strategic
and tactical reputation issues and build our relationships with the government, media, consumer advocates, and other constituencies
to help strengthen the reputations of both our company and industry. Our actions include implementing pro-consumer practices
in our business and taking public positions in support of better consumer practices in our industry. The General Counsel is responsible
for managing our overall reputation risk program. Day-to-day activities are controlled by the frameworks set forth in our Reputation
Risk Management Policy and other risk management policies.