HSBC 2008 Annual Report Download - page 193

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final rule regarding Risk-Based Capital Standards:
Advanced Capital Adequacy Framework – Basel II.
This final rule represents the US adoption of the
Basel II International Capital Accord (‘Basel II’).
The final rule became effective on 1 April 2008, and
requires large bank holding companies, including
HNAH, to adopt its provisions no later than 1 April
2011. HNAH has established comprehensive Basel
II implementation project teams comprised of risk
management specialists representing all risk
disciplines. In addition, US banking authorities have
adopted ‘leverage’ capital requirements that
generally require US banks and bank holding
companies to maintain a minimum amount of capital
in relation to their balance sheet assets (measured on
a non-risk-weighted basis).
HBUS and HTCD are subject to risk-based
assessments from the FDIC, which insures deposits
generally to a maximum of US$100,000 per
domestic depositor. In October 2008, the FDIC
raised the maximum amount of insured deposits
to US$250,000 per domestic depositor until
31 December 2009, after which the limit will return
to US$100,000. The FDIC bases assessments on
supervisory ratings, financial ratios and long-term
debt issuer ratings, with those banks in the highest
rated categories paying lower assessments.
In October 2008, the FDIC announced its
Temporary Liquidity Guarantee Programme
(‘TLGP’), under which the FDIC will guarantee
(i) newly-issued senior unsecured debt issued by
eligible, participating institutions, and (ii) certain
non-interest bearing transaction accounts. HNAH
and its subsidiary banks and bank holding companies
elected to participate in both components of the
TLGP, as applicable.
HSBC’s US consumer finance operations are
subject to extensive state-by-state regulation in the
US, and to laws relating to consumer protection
(both in general, and in respect of sub-prime lending
operations, which have been subject to enhanced
regulatory scrutiny); discrimination in extending
credit; use of credit reports; privacy matters;
disclosure of credit terms; and correction of billing
errors. They also are subject to regulations and
legislation that limit operations in certain
jurisdictions.
Risk management
(Unaudited)
Introduction
All HSBC’s activities involve, to varying degrees,
the analysis, evaluation, acceptance and management
of risks or combinations of risks. The most important
categories of risk that the Group is exposed to are
credit risk (including cross-border country risk),
market risk, operational risks in various forms,
liquidity risk, insurance risk, pension risk, residual
value risk, reputational risk and sustainability
(environmental and social) risks. Market risk
includes foreign exchange, interest rate and equity
price risks.
The management of these various risk
categories is discussed below. Insurance risk is
managed by the Group’s insurance businesses
together with their own credit, liquidity and market
risk functions, distinct from those covering the rest
of HSBC due to the different nature of their
activities. They remain under risk oversight at Group
level.
The risk profiles of HSBC Group and of
individual operating entities change constantly under
the influence of a wide range of factors. The risk
management framework established by the Group
fosters the continuous monitoring of the risk
environment and an integrated evaluation of risks
and their interdependencies.
Risk governance and ownership
A well-established risk governance and ownership
structure ensures oversight of, and accountability for,
the effective management of risk at Group, regional,
customer group and operating entity levels.
The Board approves the Group’s risk appetite
framework, plans and performance targets for the
Group and its principal operating subsidiaries, the
appointment of senior officers, the delegation of
authorities for credit and other risks and the
establishment of effective control procedures. Under
authority delegated by the Board, the Group
Management Board (‘GMB’) through its separately
convened Risk Management Meeting (‘RMM’)
formulates high-level Group risk management policy,
exercises delegated risk authorities and oversees the
implementation of risk appetite and controls. It
monitors all categories of risk, receives reports on
actual performance and emerging issues, determines
action to be taken and reviews the efficacy of HSBC’s
risk management framework.
Primary responsibility for managing risk at
operating entity level lies with the respective boards
and Chief Executive Officers, as custodians of their
balance sheets. In their oversight and stewardship of
risk management at Group level, GMB and RMM are
supported by a dedicated Global Risk function headed
by the Group Chief Risk Officer (‘GCRO’), who is a
member of both bodies and reports to the Group
Finance Director within the integrated Finance and