SunTrust 2011 Annual Report Download - page 92
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Organizationally, CRM measures and manages risk along four dimensions: credit risk, market risk (including liquidity risk),
operational risk, and compliance/regulatory risk (including legal risk and reputational risk), which can be influenced by any of
the other risk disciplines. Credit risk programs are overseen by the Chief Wholesale Credit Officer and the Chief Retail Credit
Officer; market risk programs are overseen by the Chief Market Risk Officer; operational risk programs are overseen by the CORO;
and compliance/regulatory risk programs are overseen by the Corporate Compliance and Regulatory Liaison Officer. Other
activities overseen by CRM include risk information and reporting; risk analytics, including stress testing and the ALLL; Model
Risk Management; asset quality/credit process assurance (Risk Review) and risk administration functions.
Credit Risk Management
Credit risk refers to the potential for economic loss arising from the failure of clients to meet their contractual agreements on all
credit instruments, including on-balance sheet exposures from loans and leases, investment securities, contingent exposures from
unfunded commitments, letters of credit, credit derivatives, and counterparty risk under derivative products. As credit risk is an
essential component of many of the products and services we provide to our clients, the ability to accurately measure and manage
credit risk is integral to maintain both the long-run profitability of our lines of business and our capital adequacy.
CRM establishes credit risk management governance frameworks and policies, and oversees adherence. It also independently
measures, analyzes, and reports on portfolio and risk trends, and actively participates in the formulation of the Company's credit
strategies. Credit risk officers and supporting teammates within our lines of business are direct participants in the origination,
underwriting, and ongoing management of credit. They promote an appropriate balance between our risk management and business
objectives through adherence to established policies, procedures, and standards. Risk Review, one of our independent assurance
functions, regularly assesses and reports on business unit and enterprise asset quality, and the integrity of our credit processes. In
addition, total borrower exposure limits are established and concentration risk is monitored. Credit risk is partially mitigated
through purchase of credit loss protection via third party insurance and use of credit derivatives such as CDS.
Borrower/counterparty (obligor) risk and facility risk are evaluated using our risk rating methodology, which has been implemented
in all lines of business. We use various risk models in the estimation of expected and unexpected losses. These models incorporate
both internal and external default and loss experience. To the extent possible, we collect internal data to ensure the validity,
reliability, and accuracy of our risk models used in default and loss estimation.
We have made a commitment to maintain and enhance comprehensive credit systems in order to meet business requirements and
comply with evolving regulatory standards. As part of a continuous improvement process, Credit Risk Management evaluates
potential enhancements to our risk measurement and management tools, implementing them as appropriate along with amended
credit policies and procedures.
Operational Risk Management
We face ongoing and emerging risks and regulations related to the activities that surround the delivery of banking and financial
products. Coupled with external influences such as market conditions, fraudulent activities, disasters, security risks, country risk,
and legal risk, the potential for operational and reputational loss has increased.
We believe that effective management of operational risk – defined as the risk of loss resulting from inadequate or failed internal
processes, people and systems, or from external events – plays a major role in both the level and the stability of the profitability
of the institution. Our Operational Risk Management function oversees an enterprise-wide framework intended to identify, assess,
control, monitor, and report on operational risks Company-wide. These processes support our goals in seeking to minimize future
operational losses and strengthen our performance by optimizing operational capital allocation.
Operational Risk Management is overseen by our CORO, who reports directly to the CRO. The operational risk governance
structure also includes a risk manager and support staff embedded within each line of business and corporate function. These risk
managers are responsible for execution of risk management within their areas in compliance with CRM's policies and procedures.
Market Risk Management
Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity
prices, and other relevant market rates or prices. Interest rate risk, defined as the exposure of net interest income and MVE to
adverse movements in interest rates, is our primary market risk and mainly arises from the structure of the balance sheet, which
includes all loans. Variable rate loans, prior to any hedging related actions, are approximately 55% of total loans and after giving
consideration to hedging related actions, are approximately 43% of total loans.