Discover 2011 Annual Report Download - page 26

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Compliance and legal risk exposures are actively and primarily managed by our business units in conjunction with our
law and compliance department. Our compliance program governs the management of compliance risk. Our Risk Committee
oversees our compliance and legal risk management. Our law and compliance department provides independent oversight for
all of our compliance and legal risk management activities. Our law and compliance department coordinates with our corporate
risk management department for the management of compliance and legal risks by reporting and escalating material incidents,
completing risk and control self-assessments, and monitoring and reporting key risk indicators.
Strategic Risk. Strategic risk can arise from adverse business decisions, improper implementation of decisions,
unanticipated economic events, failure to anticipate and respond to industry changes (including legislative and regulatory
changes), failure to create and maintain a competitive business model, and failure to attract and profitably serve customers. Our
Executive Committee actively manages strategic risk through the development, implementation and oversight of our business
strategies, including the development of budgets and business plans. Our business units take and are accountable for managing
strategic risk in pursuit of their objectives. In addition, the assessment of strategic risk is an important consideration of various
sub-committees of our Risk Committee. For example, the strategic and other risks associated with new products or services are
reviewed and reported on by our New Initiatives Committee and our Payment Services Steering Committee.
Our corporate risk management department also plays an important role in the management of strategic risk by:
(i) overseeing the objective setting and strategic planning processes from a risk perspective, to gain comfort that strategic risks
have been adequately considered in the setting of objectives and development of strategies; (ii) providing an independent risk
perspective to the new initiatives process; and (iii) assessing if there is effective alignment of management's proposed long-
term strategic objectives with the risk appetite and strategic limits approved by our Board of Directors.
Capital Planning
Our capital planning and capital adequacy assessment process is designed to ensure capital adequacy against identified
risks. The Capital Planning Committee, which is chaired by the Chief Operating Officer, oversees the development of our
strategic capital plans. Our plans are reviewed and approved by our Board of Directors.
Risk Management Review of Compensation
Our employee compensation program is designed to appropriately balance risk and reward without encouraging
imprudent risk-taking. Our Corporate Risk Officer leads periodic risk assessments of our compensation plans and reports
results to the Compensation Committee of our Board of Directors.
Supervision and Regulation
General
Our operations are subject to extensive regulation, supervision and examination under U.S. federal, state and foreign
laws and regulations. As a bank holding company under the Bank Holding Company Act of 1956 and a financial holding
company under the Gramm-Leach-Bliley Act, we are subject to the supervision, examination and regulation of the Federal
Reserve. As a large provider of consumer financial services, we are subject to the supervision, examination and regulation of
the Consumer Financial Protection Bureau ("CFPB").
We operate two banking subsidiaries, each of which is in the United States. Discover Bank, our main banking subsidiary,
offers credit card loans, student loans and personal loans, as well as certificates of deposit, savings accounts and other types of
deposit accounts. Discover Bank is chartered and regulated by the Office of the Delaware State Bank Commissioner (the
“Delaware Commissioner”), and is also regulated by the Federal Deposit Insurance Corporation (“FDIC”), which insures its
deposits up to applicable limits and serves as the bank's primary federal banking regulator. Our other bank, Bank of New
Castle, is also chartered and regulated by the Delaware Commissioner and insured and regulated by the FDIC.
Bank Holding Company Regulation
Permissible activities for a bank holding company include those activities that are so closely related to banking as to be a
proper incident thereto, such as consumer lending and other activities that have been approved by the Federal Reserve by
regulation or order. Certain servicing activities are also permissible for a bank holding company if conducted for or on behalf of
the bank holding company or any of its affiliates. Impermissible activities for bank holding companies include activities that
are related to commerce such as retail sales of nonfinancial products.
A financial holding company and the non-bank companies under its control are permitted to engage in activities
considered financial in nature, incidental to financial activities, or complementary to financial activities, if the Federal Reserve
determines that such activities pose no risk to the safety or soundness of depository institutions or the financial system in
general.
Being a financial holding company under the Gramm-Leach-Bliley Act requires that the depository institutions that we
control meet certain criteria, including capital, management and Community Reinvestment Act requirements. In addition, under
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) enacted in July 2010, we are required to
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