Bank of Montreal 2007 Annual Report Download - page 69

Enterprise-Wide Risk Management
BMO Financial Group has an enterprise-wide approach to the identifi-
cation, measurement, monitoring and management of risks faced across
the organization. These risks are classified as credit and counterparty,
market, liquidity and funding, operational, business, reputation and
environmental risk.
BMO’s risk management framework guides our risk-taking activities and
ensures that they are aligned with client needs, shareholder expectations
and regulatory requirements. The framework provides for not only the
direct management of each individual risk type but also the management
of risks on an integrated basis. It consists of comprehensive risk gover-
nance, effective processes and models, and qualified risk professionals.
Comprehensive Risk Governance
BMO’s risk governance structure promotes making sound business
decisions by balancing risk and reward. It promotes revenue-generating
activities consistent with our standards and risk tolerance levels and
drives the maximization of long-term shareholder return.
Our comprehensive risk governance structure (see box below)
includes a body of corporate policies approved by the Board of Directors
or its committees, as well as supporting corporate standards and oper-
ating procedures. These are reviewed on a regular basis to ensure that
they provide effective guidance for the governance of our risk-taking
activities. In each line of business, management ensures that governance
activities, controls and management processes and procedures are
consistent with our overall risk management framework.
Risk limits, which define BMO’s risk tolerance, are reviewed and
approved annually by the Risk Review Committee of the Board for:
•credit and counterparty risk –limits on country, industry,
portfolio/product segments, group and single-name exposures;
•market risk –limits on Market Value Exposure (MVE), Earnings
Volatility (EV) and stress testing exposures; and
•liquidity and funding risk –limits on minimum levels of liquid assets
and asset pledging, and guidelines approved by senior management
for liability diversification and credit and liquidity commitments.
These risk limits generally encompass both on- and off-balance sheet
arrangements.
Individual governance committees further establish and monitor
comprehensive risk management limits consistent with and subordinate
to the Board-approved limits. Loss limits are also in place, providing an
early warning mechanism to effectively address potential loss situations.
Comprehensive
Risk Governance
Enterprise-Wide
Risk Management
Effective Processes
and Models
Qualified
Risk Professionals
Risk Review Committee of the Board of Directors (RRC) assists
the Board in fulfilling its oversight responsibilities in relation to
BMO’s identification and management of risk, adherence to internal
risk management policies and procedures, and compliance with
risk-related regulatory requirements.
Audit Committee of the Board of Directors independently
monitors and reports to the Board of Directors on the effectiveness
of disclosure controls and procedures and internal controls, including
internal control over financial reporting.
The President and Chief Executive Officer (CEO) is directly
accountable to the Board for all of BMO’s risk-taking activities.
Risk Management Committee and its sub-committees as well
as Enterprise Risk and Portfolio Management support the CEO.
Risk Management Committee (RMC), BMO’s senior risk committee,
reviews and discusses significant risk issues and action plans that
arise in executing the enterprise-wide strategy. RMC ensures that risk
oversight and governance occur at the highest levels of management.
RMC Sub-committees have oversight responsibility for manage-
ment strategy, governance, risk measurement and contingency
planning. RMC and its sub-committees ensure that the risks
incurred across the enterprise are consistent with strategy and are
identified, measured, monitored and
reported in accordance with
policy and within delegated limits.
Enterprise Risk and Portfolio Management (ER&PM) encompasses
credit adjudication and oversight as well as the management
and oversight of the operational and market risk functions. It ensures
consistency of risk management practices and standards across
the enterprise. ER&PM facilitates a disciplined approach to risk-taking
through the execution of transactional and portfolio management,
policy formulation, risk reporting, modelling, vetting and risk
education responsibilities. This ensures corporate objectives are
met while risks taken are consistent with BMO’s risk tolerance.
Business Units own and are responsible for managing risk within
their respective business unit. They do this by ensuring that policies,
processes and internal controls are in place and by escalating
significant risk issues.
Enterprise Risk and Portfolio Management (ER&PM)
Business Units
Operational
Risk
Committee
Market Risk
Committee
Risks Managed
Liquidity and
Funding and
Structural
Market Risk
Trading and
Underwriting
Market Risk
Credit and
Counterparty Operational Business and
Reputation
Management Risk Committees
Board of Directors
Board Oversight
Board Audit Committee
Board Risk Review Committee
Risk Management
Committee
Balance Sheet
Management Committee
Reputation Risk
Management Committee
Assurance Reporting Authority Controls
MD&A
BMO Financial Group 190th Annual Report 2007 65