TD Bank 2001 Annual Report Download - page 31

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HOW WE PERFORMED IN 2001
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE
made available to meet our obligations. Our liquidity policy
measures the amount of liquidity required to cover short-term
requirements under normal operations and in a crisis scenario.
Who manages liquidity risk
The Treasury and Balance Sheet Management function in Group
Finance is responsible for measuring the Bank’s liquidity risk
position and for managing the Canadian dollar liquidity position.
TD Securities is responsible for managing the U.S. dollar and
other currency liquidity positions. The Asset Liability Committee
oversees liquidity risk management. The Audit and Risk
Management Committee of the Board of Directors reviews and
approves liquidity management policies annually.
How we manage liquidity risk
We make sure that we have sufficient funds available to meet
our obligations by managing our cash flows and holding assets
that can be readily converted into cash. We also have an
active wholesale funding program, including asset securitization,
to make sure that we have access to funds from widely diversi-
fied sources.
We manage liquidity on a global basis to make sure risk is
prudently managed in all of our operations. In addition to a large
base of stable retail and commercial deposits, we have highly
diversified wholesale funding sources and distribution networks
to support the operations of the wholesale bank. If there was a
liquidity crisis, there are sufficient marketable securities to cover
maturing obligations over a specified time period. Because
customers who make large deposits can affect our liquidity, we
also make sure that we don’t rely on one customer or a small
group of customers.
On October 31, 2001, our consolidated surplus liquid asset
position was $.5 billion in Canadian dollars, compared with a
position of $2.2 billion Canadian on October 31, 2000. The
surplus liquid asset position is total liquid assets less TD’s short-
term wholesale funding requirements. During the year, the
surplus liquid asset position was drawn down primarily due to
fund growth in retail assets.
If there was a liquidity crisis, we have contingency plans to
make sure we meet all of our obligations as they come due.
OPERATIONAL RISK
Operational risk is the risk of loss resulting from inadequate
or failed internal processes, resources and systems or from
external events.
Operational risk is inherent in all business activities and can
result in financial loss, loss of reputation or regulatory penalties.
Operational risk includes transaction processing risks, technology
failures, physical asset risk, the failure of employees to adhere
to internal guidelines, and risk from regulatory and compliance
failures. It also includes risk from criminal sources such as
theft and fraud, and third-party liability risk. We are exposed to
operational risk from internal business activities and from
activities we outsource.
Managing operational risk is a key objective of TD Bank
Financial Group. It is essential for protecting, enhancing and
creating shareholder value, operating efficiency and providing a
safe working environment for staff and customers.
Who manages operational risk
We have established an independent Operational Risk
Management Group in Group Risk Management to set policies
and coordinate operational and risk management activities
throughout our organization.
How we manage operational risk
The Operational Risk Management Group is responsible for:
•continually identifying, measuring and reporting on the
operational risk exposures of our businesses
•making sure economic capital for managing risk is allocated
based on assessments of operational risk
•overseeing the execution of key enterprise-wide risk
management practices, including an extensive system of
internal controls, trained and competent people, segregating
incompatible functions and clearly defined operating practices
•identifying and implementing leading industry practices for
operational risk management.
Business recovery planning
We have business recovery plans and processes in place for all
operating businesses and corporate support functions. These
plans provide safeguards to minimize the risk, cost and duration
of a disruption to our business processes and services. An
Executive Team oversees TD’s business recovery planning and
makes sure there is continuous management of the organization.
Its responsibilities include:
•maintaining and communicating business recovery policies
and procedures, including industry benchmarking
•identifying and assessing critical business processes and
dependencies
•regular testing of business recovery plans for all key
operations
•maintaining offsite back up facilities to make sure we can
continue to deliver our products and services.
Insurance
Specialists in risk management and insurance manage an active
portfolio of insurance coverage to protect TD from internal and
external events in the course of doing business. These specialists
are responsible for reviewing all insurable risks and for
developing and implementing insurance and risk transfer
solutions. The analysis includes an ongoing review of the claims
paying ability of our insurance providers.