Huntington National Bank 2011 Annual Report Download - page 27

Management also utilizes a wide series of metrics (key risk indicators) to monitor risk positions throughout
the Company. In general, a range for each metric is established that identifies a moderate-to-low position.
Deviations from the range will indicate if the risk being measured is moving into a high position, which may then
necessitate corrective action.
In 2010, we enhanced our process of risk-based capital attribution. Our economic capital model was
upgraded and integrated into a more robust system of stress testing in 2011. We believe this tool has further
enhanced our ability to manage to the defined risk appetite. Our board level Capital Planning Committee will
monitor and react to output from the integrated modeling process.
We also have three other executive level committees to manage risk: ALCO, Credit Policy and Strategy, and
Risk Management. Each committee focuses on specific categories of risk and is supported by a series of
subcommittees that are tactical in nature. We believe this structure helps ensure appropriate elevation of issues
and overall communication of strategies.
Huntington utilizes three levels of defense with regard to risk management: (1) business segments,
(2) corporate risk management, (3) internal audit and credit review. To induce greater ownership of risk within
its business segments, segment risk officers have been embedded to identify and monitor risk, elevate and
remediate issues, establish controls, perform self-testing, and oversee the quarterly self-assessment process.
Segment risk officers report directly to the related segment manager with a dotted line to the Chief Risk Officer.
Corporate Risk Management establishes policies, sets operating limits, reviews new or modified products/
processes, ensures consistency and quality assurance within the segments, and produces the enterprise risk
assessment. The Chief Risk Officer has significant input into the design and outcome of incentive compensation
plans as they apply to risk. Internal Audit and Credit Review provide additional assurance that risk-related
functions are operating as intended.
Huntington believes it has provided a sound risk governance foundation to support the Bank. Our process
will be subject to continuous improvement and enhancement. Our objective is to have strong risk management
practices and capabilities.
Risk Overview
We, like other financial companies, are subject to a number of risks that may adversely affect our financial
condition or results of operation, many of which are outside of our direct control, though efforts are made to
manage those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk of
loss due to loan and lease customers or other counterparties not being able to meet their financial obligations
under agreed upon terms, (2) market risk, which is the risk of loss due to changes in the market value of assets
and liabilities due to changes in market interest rates, foreign exchange rates, equity prices, and credit spreads,
(3) liquidity risk, which is (a) the risk of loss due to the possibility that funds may not be available to satisfy
current or future commitments based on external macro market issues, investor and customer perception of
financial strength, and events unrelated to us such as war, terrorism, or financial institution market specific
issues, and (b) the risk of loss based on our ability to satisfy current or future funding commitments due to the
mix and maturity structure of our balance sheet, amount of on-hand cash and unencumbered securities and the
availability of contingent sources of funding, (4) operational risk, which is the risk of loss due to human error,
inadequate or failed internal systems and controls, violations of, or noncompliance with, laws, rules, regulations,
prescribed practices, or ethical standards, and external influences such as market conditions, fraudulent activities,
disasters, and security risks, and (5) compliance risk, which exposes us to money penalties, enforcement actions
or other sanctions as a result of nonconformance with laws, rules, and regulations that apply to the financial
services industry.
We also expend considerable effort to contain risk which emanates from execution of our business strategies
and work relentlessly to protect the Company’s reputation. Strategic and reputational risks do not easily lend
themselves to traditional methods of measurement. Rather, we closely monitor them through processes such as
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