Home » GE Annual Reports » 2013 Annual Report - page 42

GE 2013 Annual Report Download - page 42

Download and view the complete annual report

Please find page 42 of the 2013 GE annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

’   

40 GE 2013 ANNUAL REPORT

• FINANCIAL. Financial risk relates to our ability to meet ﬁ nancial

obligations and mitigate credit risk, liquidity risk and expo-

sure to broad market risks, including volatility in foreign

currency exchange rates, interest rates and commodity

prices. Liquidity risk refers to the potential inability to meet

contractual or contingent ﬁ nancial obligations (whether

on- or off-balance sheet) as they arise, and could poten-

tially impact an institution’s ﬁ nancial condition or overall

safety and soundness. Credit risk is the risk of ﬁ nancial

loss arising from a customer or counterparty failure to

meet its contractual obligations. We face credit risk in our

industrial businesses, as well as in our GE Capital invest-

ing, lending and leasing activities and derivative ﬁ nancial

instruments activities.

•

LEGAL AND COMPLIANCE. Legal and compliance risk relates

to risks arising from the government and regulatory envi-

ronment and action, compliance with integrity policies and

procedures, including those relating to ﬁ nancial reporting,

environmental health and safety, and intellectual property

risks. Government and regulatory risk includes the risk that

the government or regulatory actions will impose additional

cost on us or cause us to have to change our business models

or practices.

Risks identiﬁ ed through our risk management processes are

prioritized and, depending on the probability and severity of the

risk, escalated to the CRO. These risks are discussed and respon-

sibility for them is assigned to the business or functional leader

most suited to manage the risk in connection with the quarterly

operating reviews. Assigned owners are required to continually

monitor, evaluate and report on risks for which they bear respon-

sibility. Enterprise risk leaders within each business and corporate

function are responsible to present to the CRO risk assessments

and key risks at least annually. We have general response strat-

egies for managing risks, which categorize risks according to

whether the Company will avoid, transfer, reduce or accept the

risk. These response strategies are tailored to ensure that risks

are within acceptable GE Board general guidelines.

Depending on the nature of the risk involved and the par-

ticular business or function affected, we use a wide variety of

risk mitigation strategies, including delegation of authorities,

standardized processes and strategic planning reviews, oper-

ating reviews, insurance, and hedging. As a matter of policy,

we generally hedge the risk of ﬂ uctuations in foreign currency

exchange rates, interest rates and commodity prices. Our ser-

vice businesses employ a comprehensive tollgate process

leading up to and through the execution of a contractual ser-

vice agreement to mitigate legal, ﬁ nancial and operational risks.

Furthermore, we centrally manage some risks by purchasing

insurance, the amount of which is determined by balancing the

level of risk retained or assumed with the cost of transferring

risk to others. We manage the risk of ﬂ uctuations in economic

activity and customer demand by monitoring industry dynam-

ics and responding accordingly, including by adjusting capacity,

implementing cost reductions and engaging in mergers, acquisi-

tions and dispositions.

GE CAPITAL RISK MANAGEMENT AND OVERSIGHT

GE Capital acknowledges risk-taking as a fundamental characteristic

of providing ﬁ nancial services. It is inherent to its business and

arises in lending, leasing and investment transactions under-

taken by GE Capital. GE Capital operates within the parameters

of its established risk appetite in pursuit of its strategic goals

and objectives.

GE Capital continues to enhance its risk infrastructure and

processes to manage risks related to its businesses, and the GE

Corporate Risk Function relies upon them in fulﬁ lling its mission.

The GE Risk Committee oversees GE Capital’s risk appe-

tite, risk assessment and management processes. The GE Risk

Committee and the GECC Board oversee the GE Capital risk

management framework, with the GECC Board approving all

signiﬁ cant acquisitions and dispositions as well as signiﬁ cant bor-

rowings and investments. The GE Risk Committee and the GECC

Board exercise oversight of investment activities in the business

units through delegations of authority. All participants in the GE

Capital risk management process must comply with approval lim-

its established by the GE Risk Committee and the GECC Board.

The Enterprise Risk Management Committee (ERMC), which

comprises the most senior leaders in GE Capital as well as the GE

CRO, oversees the implementation of GE Capital’s risk appetite,

and senior management’s establishment of appropriate systems

(including policies, procedures and management committees)

to ensure enterprise risks are effectively identiﬁ ed, measured,

monitored and controlled. The ERMC has delegated manage-

ment of speciﬁ c risks to various sub-committees, including

the Operational Risk Management Committee, Asset-Liability

Committee, Capital Planning Committee and Asset Quality

Committee. Day-to-day risk oversight for GE Capital is provided

by an independent global risk management organization that

includes the GE Capital corporate function in addition to indepen-

dent risk ofﬁ cers embedded in the individual business units.

GE Capital’s risk management approach rests upon three

major tenets: a broad spread of risk based on managed exposure

limits; senior secured commercial ﬁ nancings; and a hold-to-

maturity model with transactions underwritten to “on-book”

standards. Dedicated risk professionals across the businesses

include underwriters, portfolio managers, collectors, envi-

ronmental and engineering specialists, and specialized asset

managers. The senior risk ofﬁ cers have, on average, over 30 years

of experience.

GE Capital manages all risks relevant to its business envi-

ronment, which, if materialized, could prevent GE Capital from

achieving its risk objectives and/or result in losses. These risks are

deﬁ ned as GE Capital’s Enterprise Risk Universe, which includes

the following risks: strategic, liquidity, credit and investment,

market and operational (including ﬁ nancial, compliance, informa-

tion technology, human resources and legal). Reputational risk

is considered and managed across each of the categories. GE