TD Bank 2006 Annual Report Download - page 61

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Management’s Discussion and Analysis 57
standards. There is increasing pressure on financial services companies
to provide products and services at lower prices. This can reduce the
Bank’s net interest income and revenues from fee-based products and
services. In addition, the widespread adoption of new technologies
could require the Bank to make substantial expenditures to modify or
adapt existing products and services. The Bank might not be successful
in introducing new products and services, achieving market acceptance
of its products and services, and/or developing and maintaining loyal
customers.
Acquisitions and Strategic Plans
The Bank regularly explores opportunities to acquire other financial
services companies or parts of their businesses directly or indirectly
through the acquisition strategies of its subsidiaries. The Bank’s or a
subsidiary’s ability to successfully complete an acquisition is often
subject to regulatory and shareholder approvals and the Bank cannot
be certain when or if, or on what terms and conditions, any required
approvals will be granted. Acquisitions can affect future results
depending on management’s success in integrating the acquired busi-
ness. If the Bank or its subsidiary encounters difficulty in integrating
the acquired business, maintaining the appropriate level of gover-
nance over the acquired business or finding appropriate leadership
within the acquired entity, this can prevent the Bank from realizing
expected revenue increases, cost savings, increases in market share
and other projected benefits from the acquisition. The Bank’s financial
performance is also influenced by its ability to execute strategic plans
developed by management. If these strategic plans do not meet with
success or there is a change in strategic plans, the Bank’s earnings
could grow more slowly or decline.
Ability to Attract and Retain Key Executives
The Bank’s future performance depends to a large extent on its ability
to attract and retain key executives. There is intense competition for
the best people in the financial services sector. There is no assurance
that the Bank will be able to continue to attract and retain key execu-
tives, employed by the Bank or an entity acquired by the Bank,
although this is the goal of the Bank’s management resources’ policies
and practices.
Business Infrastructure
Third parties provide key components of the Bank’s business infrastruc-
ture such as Internet connections and network access. Given the high
volume of transactions we process on a daily basis, certain errors may
be repeated or compounded before they are discovered and successfully
rectified. Despite the contingency plans we have in place, disruptions in
Internet, network access or other voice or data communication services
provided by these third parties could adversely affect the Bank’s ability
to deliver products and services to customers and otherwise conduct
business.
RISK FACTORS AND MANAGEMENT
Managing Risk
EXECUTIVE SUMMARY
Financial services involves prudently taking risks in order to
generate profitable growth. At the Bank, our goal is to earna sta-
ble and sustainable rate of return for every dollar of risk we take,
while putting significant emphasis on investing in our businesses to
ensure we can meet our future growth objectives. Our businesses
thoroughly examine the various risks to which they are exposed
and assess the impact and likelihood of those risks. We respond by
developing business and risk management strategies for our various
business units taking into consideration the risks and business
environment in which we operate.
WHAT ARE THE RISKS INVOLVED IN OUR BUSINESSES?
Through our businesses and operations, the Bank is exposed to a
broad number of risks that have been identified and defined in our
Enterprise Risk Framework. This framework forms the foundation
for the setting of appropriate risk oversight processes and the
consistent communication and reporting of key risks that could
have an impact on the achievement of our business objectives
and strategies.
THE ENTERPRISE RISK FRAMEWORK
Board of Directors
•Provides oversight.
Risk Committee of the Board
•Approves risk management policies.
•Monitors management of risks.
•“Big Picture” analysis of risk trends.
Senior Executive Team
•Monitors and evaluates risk.
•Identifies significant risks.
•Responsible for managing risk
across the Bank.
Executive Committees
(See below)
Risk Management
•Sets enterprise-level policies and standards that reflect the risk appetite
of the Bank.
•Monitors and reports on enterprise-level risks.
Business Units
•Responsible for owning and managing risk.
•Set and implement policies consistent with enterprise-level policy.
Audit
•Provides independent
assurance.
Compliance
•Provides independent
review.
As illustrated, the Enterprise Risk Framework sets out the
major categories of risk to which we are exposed, and how they
areinterrelated.
WHO MANAGES RISK
We have a risk governance structure in place that assigns owner-
ship of risk and outlines the accountabilities of directors, officers
and employees involved in risk management. Our structureensures
that important information about risks flows up from the business
units and oversight functions to the Senior Executive Team and the
Boardof Directors.
Credit Risk Market Risk Operational
Risk
Insurance
Risk
Regulatory &
Legal Risk
Reputational
Risk
Liquidity
Risk
Strategic Risk