Sallie Mae 2011 Annual Report Download - page 91

Political and Reputation Risk Management
Political and reputation risk is the risk that changes in laws and regulations or actions affecting impacting
our reputation could affect the profitability and sustainability of our business.
Management proactively assesses and manages political and reputation risk. Our government relations team
of employees manages our review and response to all formal inquiries from members of Congress, state
legislators, and their staff, including providing targeted messaging that reinforces our public policy goals. We
review and consider political and reputational risks on an integrated basis in connection with the risk
management oversight activities conducted in the various aspects of our business on matters as diverse as the
launch of new products and services, our credit underwriting activities and how we fund our operations. Our
public relations, marketing and media teams constantly monitor our perception in print, electronic and social
media; actively provide assistance and support to our customers and other constituencies and maintain and
promote the value of our considerable corporate brand. Significant political and reputation risks are reported to
and monitored by the Finance and Operations Committee of our Board of Directors. Our Legal, Government
Relations and Compliance groups efforts are coordinated through our General Counsel and regularly meet and
collaborate with our Media and Investor Relations teams to provide more coordinated monitoring and
management of our political and reputational risks.
Credit and Counterparty Risk Management
Credit and counterparty risk is the risk of loss stemming from one party’s failure to repay a loan or
otherwise meet a contractual obligation. We have credit or counterparty risk exposure with borrowers and
co-borrowers with whom we have made Private Education Loans, the various counterparties with whom we have
entered into derivative contracts, the various issuers with whom we make investments, and with several higher
education institutions related to academic facilities loans secured by real estate. Credit and counterparty risks are
overseen by our Chief Credit Officer, his staff and the internal risk management committee he chairs. Our Chief
Credit Officer reports regularly to our Board of Directors, Finance and Operations and Audit Committees with
respect to the various matters of which each have oversight.
The credit risk related to Private Education Loans are managed within a credit risk infrastructure which
includes (i) a well-defined underwriting and collection policy framework; (ii) an ongoing monitoring and review
process of portfolio segments and trends; (iii) assignment and management of credit authorities and
responsibilities; and (iv) establishment of an allowance for loan losses that covers estimated losses based upon
portfolio and economic analysis.
Credit and counterparty risk related to derivative contracts is managed by reviewing counterparties for credit
strength on an ongoing basis and via our credit policies, which place limits on the amount of exposure we may
take with any one counterparty and, in most cases, require collateral to secure the position. The credit and
counterparty risk associated with derivatives is measured based on the replacement cost should the counterparties
with contracts in a gain position to the Company fail to perform under the terms of the contract.
Compliance and Legal Risk Management
Compliance risk is the operational risk of legal or regulatory sanctions, financial loss or damage to
reputation resulting from failure to comply with laws, regulations, rules, other regulatory requirements, or codes
of conduct and other standards of self-regulatory organizations applicable to us. Legal risk arises, in part, from
the potential that unenforceable contracts, lawsuits or adverse judgments can disrupt or otherwise negatively
affect our operations or condition. These risks are inherent in all of our businesses. Both compliance and legal
risk are sub-sets of operational risk but are recognized as a separate and complementary risk category given their
importance in our business. We can be exposed to regulatory and compliance risk in key areas such as our private
education lending, collections or loan servicing businesses if compliance with legal and regulatory requirements
is not properly implemented, documented or tested, as well as when an oversight program does not include
appropriate audit and control features.
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