Wells Fargo 2015 Annual Report Download - page 99

performance relative to historic market volatility in addition to
model performance and assumptions. This capital multiplier
increases from a minimum of three to a maximum of four,
depending on the number of exceptions. No backtesting
exceptions occurred over the preceding 12 months. Backtesting
is also performed at more granular levels within the Company.
Table 49: Daily Total 1-Day 99% VaR Measure (Rolling 12 Months)
Table 49 shows daily Total VaR (1-day, 99%) used for
market risk regulatory capital backtesting for the 12 months
ended December 31, 2015. The Company’s average Total VaR for
fourth quarter 2015 was $22 million with a low of $18 million
and a high of $25 million.
Market Risk Governance The Finance Committee of our Board
has primary oversight over market risk-taking activities of the
Company and reviews the acceptable market risk appetite. The
Corporate Risk Group’s Market Risk Committee, which reports
to the Finance Committee of the Board, is responsible for
governance and oversight of market risk-taking activities across
the Company as well as the establishment of market risk appetite
and associated limits. The Corporate Market Risk Group, which
is part of the Corporate Risk Group, administers and monitors
compliance with the requirements established by the Market
Risk Committee. The Corporate Market Risk Group has
oversight responsibilities in identifying, measuring and
monitoring the Company’s market risk. The group is responsible
for developing corporate market risk policy, creating
quantitative market risk models, establishing independent risk
limits, calculating and analyzing market risk capital, and
reporting aggregated and line-of-business market risk
information. Limits are regularly reviewed to ensure they remain
relevant and within the market risk appetite for the Company.
An automated limits-monitoring system enables a daily
comprehensive review of multiple limits mandated across
businesses. Limits are set with inner boundaries that will be
periodically breached to promote an ongoing dialogue of risk
exposure within the Company. Each line of business that exposes
the Company to market risk has direct responsibility for
managing market risk in accordance with defined risk tolerances
and approved market risk mandates and hedging strategies. We
measure and monitor market risk for both management and
regulatory capital purposes.
Model Risk Management The market risk capital models are
governed by our Corporate Model Risk Committee policies and
procedures, which include model validation. The purpose of
model validation includes ensuring models are appropriate for
their intended use and that appropriate controls exist to help
mitigate the risk of invalid results. Model validation assesses the
adequacy and appropriateness of the model, including reviewing
its key components such as inputs, processing components, logic
or theory, output results and supporting model documentation.
Validation also includes ensuring significant unobservable
model inputs are appropriate given observable market
transactions or other market data within the same or similar
asset classes. This ensures modeled approaches are appropriate
given similar product valuation techniques and are in line with
their intended purpose.
The Corporate Model Risk Group (CMoR) provides
oversight of model validation and assessment processes.
Corporate oversight responsibilities include evaluating the
adequacy of business unit model risk management programs,
maintaining company-wide model validation policies and
standards, and reporting the results of these activities to
management. In addition to the corporate-level review, all
internal valuation models are subject to ongoing review by
business-unit-level management.
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