Citibank 2010 Annual Report Download - page 130

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COUNTRY AND CROSS-BORDER RISK MANAGEMENT
PROCESS; SOVEREIGN EXPOSURE
Country and Cross-Border Risk
Country Risk
Country risk is the risk that an event in a country (precipitated by
developments within or external to a country) will impair the value of Citi’s
franchise or will adversely affect the ability of obligors within that country
to honor their obligations to Citi. Country risk events may include sovereign
defaults, banking crises, currency crises, currency convertibility and/or
transferability restrictions, or political events.
The country risk management framework at Citigroup includes a number
of tools and management processes designed to facilitate the ongoing
analysis of individual countries and their risks. These include country risk
rating models, scenario planning and stress testing, internal watch lists,
country risk capital limits, and the Country Risk Committee process.
The Citigroup Country Risk Committee is the senior forum to evaluate
Citi’s total business footprint within a specific country franchise with
emphasis on responses to current potential country risk events. The
Committee is chaired by the Head of Global Country Risk Management
and includes as its members senior business and risk managers. The
Committee regularly reviews all risk exposures within a country, makes
recommendations as to actions, and follows up to ensure appropriate
accountability.
Cross-Border Risk
Cross-border risk is the risk that actions taken by a non-U.S. government may
prevent the conversion of local currency into non-local currency and/or the
transfer of funds outside the country, among other risks, thereby impacting
the ability of Citigroup and its customers to transact business across borders.
Examples of cross-border risk include actions taken by foreign governments
such as exchange controls and restrictions on the remittance of funds. These
actions might restrict the transfer of funds or the ability of Citigroup to
obtain payment from customers on their contractual obligations.
Management oversight of cross-border risk is performed through a
formal review process that includes annual setting of cross-border limits
and ongoing monitoring of cross-border exposures, as well as monitoring of
economic conditions globally and the establishment of internal cross-border
risk management policies.
Under Federal Financial Institutions Examination Council (FFIEC)
regulatory guidelines, total reported cross-border outstandings include cross-
border claims on third parties, as well as investments in and funding of local
franchises. Cross-border claims on third parties (trade and short-, medium-
and long-term claims) include cross-border loans, securities, deposits with
banks, investments in affiliates, and other monetary assets, as well as net
revaluation gains on foreign exchange and derivative products.
Cross-border outstandings are reported based on the country of the obligor
or guarantor. Outstandings backed by cash collateral are assigned to the
country in which the collateral is held. For securities received as collateral,
cross-border outstandings are reported in the domicile of the issuer of
the securities. Cross-border resale agreements are presented based on the
domicile of the counterparty in accordance with FFIEC guidelines.
Investments in and funding of local franchises represent the excess
of local country assets over local country liabilities. Local country assets
are claims on local residents recorded by branches and majority-owned
subsidiaries of Citigroup domiciled in the country, adjusted for externally
guaranteed claims and certain collateral. Local country liabilities are
obligations of non-U.S. branches and majority-owned subsidiaries of
Citigroup for which no cross-border guarantee has been issued by another
Citigroup office.