Discover 2015 Annual Report Download - page 31

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Chief Risk Officer
As a member of the Company's senior management team, the CRO chairs our Risk Committee. In addition, the
CRO has oversight responsibility to establish the CRM function with capabilities to exercise its mandate across all risk
categories. Our CRO reports directly to our Risk Oversight Committee and administratively to the CEO. Our CRO
provides an independent view on the key risks to which our Company is exposed to our Risk Committee, our Audit
Committee, our Risk Oversight Committee and our Board of Directors.
Corporate Risk Management
The CRM department is led by the CRO and supports business units by providing objective oversight of our risk
profile to help ensure that risks are managed, aggregated and reported to our Risk Committee, our Risk Oversight
Committee and our Audit Committee. The CRM department participates in our Risk Committee and sub-committee
meetings to provide an enterprise-wide perspective on risk, governance matters, policies and risk thresholds. The CRM
department is comprised of operational, consumer credit, counterparty credit, and market and liquidity risk oversight
functions. In addition, the CRM department has enterprise risk management, corporate compliance, third-party risk
management, model risk management, regulatory program office and risk and insurance management frameworks to
manage potential risk that might arise within these respective areas.
Credit Risk Management
Credit Risk Management is responsible for (i) developing, validating and implementing credit policy criteria and
predictive loan origination and servicing models in order to optimize the profitability of Company lending activities, (ii)
ensuring adherence to our credit risk policies and approval limits, and that departmental policies, procedures, and
internal controls are consistent with the standards defined by the Company, (iii) ensuring that we manage credit risk
within approved limits, and (iv) monitoring performance for both new and existing consumer loan products and
portfolios.
Law Department
The CRM department collaborates and coordinates closely with other risk and control functions in exercising its
oversight responsibilities, in particular with the Law department. This department plays a significant role in managing
our legal risk by, among other things, identifying, interpreting and advising on legal and regulatory risks. Our Law
department participates in meetings of the Risk Committee and the sub-committees of the Risk Committee in order to
advise on legal risks and to inform the committees of any relevant legislative and regulatory developments.
Internal Audit Department
Our Internal Audit Department performs periodic, independent reviews and testing of compliance with risk
management policies and standards across the Company, as well as assessments of the design and operating
effectiveness of these policies and standards. The Internal Audit Department also validates that risk management
controls are functioning as intended by reviewing and evaluating the design and operating effectiveness of the CRM
program and processes, including the independence and effectiveness of the CRM function. The results of such reviews
are reported to our Audit Committee.
Risk Categories
We are exposed to a broad set of risks in the course of our business activities due to both internal and external
factors, which we segment into six major risk categories. The first five are defined to be broadly consistent with
guidance published by the Federal Reserve and the Basel Committee on Banking Supervision (“BCBS”): credit, market,
liquidity, operational, and compliance/legal risk. We recognize the sixth, strategic risk, as a separate risk category.
We evaluate the potential impact of a risk event on the Company by assessing the financial impact, the impact to our
reputation, the legal and regulatory impact, and the client/customer impact. In addition, we have established various
policies to help govern these risks.
Credit Risk
Our credit risk arises from the potential that a borrower or counterparty will fail to perform on an obligation. Our
credit risk includes consumer credit risk and counterparty credit risk. Consumer credit risk is primarily incurred by
Discover Bank through the issuance of (i) unsecured credit including credit cards, student loans and personal loans and
(ii) secured credit including secured credit cards, deposit secured loans and home equity loans. Counterparty credit risk