TD Bank 2001 Annual Report Download - page 33

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HOW WE PERFORMED IN 2001
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATING PERFORMANCE
Risk-weighted assets at year end
(millions of dollars) 2001 2000 1999
Risk- Risk- Risk-
weighted weighted weighted
Balance balance Balance balance Balance balance
Balance sheet assets
Cash resources $ 5,945 $ 991 $ 4,187 $ 657 $ 6,226 $ 1,109
Securities purchased under
resale agreements 20,205 324 13,974 238 25,708 201
Securities 97,194 6,946 85,387 8,286 69,093 6,956
Loans 119,673 66,514 120,721 72,351 87,485 54,079
Customers’ liability under
acceptances 9,122 8,246 9,812 9,008 9,040 8,286
Other assets 35,699 6,342 30,737 7,704 16,865 4,757
Total balance sheet assets $ 287,838 89,363 $ 264,818 98,244 $ 214,417 75,388
Off-balance sheet assets
Credit instruments 18,350 16,130 19,347
Derivative financial instruments 6,373 4,661 3,603
Total off-balance sheet assets 24,723 20,791 22,950
Total risk-weighted asset
equivalent – credit risk 114,086 119,035 98,338
– market risk 13,032 11,125 10,146
Total risk-weighted assets $ 127,118 $ 130,160 $ 108,484
capital, risk-weighted assets and off-balance sheet exposures.
This approach is based on the Bank for International
Settlements’ agreed framework for achieving a more consistent
way to measure the capital adequacy and standards of banks
engaged in international business.
About capital ratios
Capital ratios are measures of financial strength and
flexibility.
The two primary ratios we use to measure capital
adequacy are the Tier 1 capital ratio and the total capital
ratio. OSFI defines these ratios and sets levels for
Canadian banks:
•The Tier 1 capital ratio is defined as Tier 1 capital
divided by risk-weighted assets. OSFI requires banks to
meet Tier 1 capital requirements of 7% to be considered
well capitalized.
•The total capital ratio is defined as total regulatory capital
divided by risk-weighted assets. OSFI requires banks to
meet total capital requirements of 10% to be considered
well capitalized.
Risk-weighted assets
Our total balance sheet assets showed strong growth in 2001,
increasing $23 billion or 9%. However, total risk-weighted
assets decreased, as a result of our ongoing management of
risk-weighted assets across all of our businesses.
We review balance sheet and off-balance sheet exposures
when assessing risk.
See Managing risk page 24
Interest coverage on subordinated notes and debentures
We’re required to disclose certain information to our
noteholders about our interest coverage.
Our interest requirements on all subordinated notes and
debentures after adjusting for new issues and retiring
subordinated debt amounted to $327 million for the year
ended October 31, 2001.
Our reported net income before interest and income tax
and after deducting non-controlling interest in TD Waterhouse
Group, Inc. for the year ended October 31, 2001 was $1,557
million, which was 4.8 times our interest requirement for
this period.
On an operating cash basis these figures were $327 million,
$3,240 million and 9.9 times, respectively.
PROPOSED CAPITAL ACCORD
This year, the Basel Committee on Banking Supervision
published for consultation a new capital accord to replace the
accord that was originally introduced in 1988 and
supplemented in 1996.
The proposed accord allows banks of all levels of complexity
and sophistication to determine their capital levels based on
how they measure, manage and mitigate risk. It provides a
range of methodologies, from simple to advanced, for
measuring credit and operational risk.
Each bank can adopt the approach that best fits its level of
sophistication and risk profile, subject to review by regulators.
The accord, however, seeks to build in rewards for banks that
have more rigorous and accurate risk management by allowing
them to have less regulatory capital than banks that use
weaker or less sophisticated approaches.
The financial services industry around the world has
commented on the accord. This dialogue will continue over the
next several years together with consultation with OSFI on
implementing the accord in Canada. We’re developing systems
and procedures to implement the new accord beginning with
fiscal year 2005.