TD Bank 2012 Annual Report Download - page 66

TD BANK GROUP ANNUAL REPORT 2012 MANAGEMENT’S DISCUSSION AND ANALYSIS64
RISK FACTORS AND MANAGEMENT
Managing Risk
EXECUTIVE SUMMARY
Growing profitably in financial services involves selectively taking and
managing risks within TD’s risk appetite.
TD’s Enterprise Risk Framework (ERF) reinforces TD’s risk culture,
which emphasizes transparency and accountability, and provides
stakeholders with a common understanding of how we manage risk.
The ERF addresses: 1) the nature of the risks to TD’s business strategy
and operations, 2) how TD defines the types of risk it is exposed to,
3) risk management governance, and 4) how TD manages risk through
processes that identify, measure, assess, control and monitor risk.
TD’s risk management resources and processes are designed to enable
all our businesses to understand the risks they face and to manage
them within TD’s risk appetite.
RISK APPETITE
TD’s risk appetite statement is the primary means used to communi-
cate how TD views risk and determines the risks it is willing to take.
TD takes into account its mission, vision, guiding principles, strategy,
as well as TD’s risk philosophy and capacity to bear risk in defining its
risk appetite. TD’s Risk Appetite Statement is summarized as follows:
We take risks required to build our business, but only if those risks:
1. Fit our business strategy, and can be understood and managed.
2. Do not expose the enterprise to any significant single loss events;
we don’t ‘bet the bank’ on any single acquisition, business, or product.
3. Do not risk harming the TD brand.
In applying its risk appetite, TD considers both current conditions
in which it operates and the impact that emerging risks will have on
TD’s strategy and risk profile. Adherence to enterprise risk appetite is
managed and monitored across TD and is based on a broad collection
of principles, policies, processes and tools, including risk appetite
statements and related metrics for major risk categories and the
business segments.
Risk Management is responsible for establishing practices and
processes to formulate, report, monitor, and review the application of
TD’s risk appetite and related metrics. The function also monitors and
evaluates the effectiveness of these practices and metrics. Key metrics
are reported regularly to senior management, the Board and the Risk
Committee of the Board (Risk Committee). Other metrics are tracked
on an ongoing basis by management, and escalated to senior manage-
ment and at the Board level, as required. TD measures management’s
performance against its risk appetite metrics; this is used as a key input
into the compensation decision process.
RISKS INVOLVED IN OUR BUSINESSES
TD’s Risk Inventory sets out TD’s major risk categories and related
subcategories and identifies and defines a broad number of risks to
which our businesses and operations could be exposed. This inventory
facilitates consistent enterprise risk identification. It is the starting
point in developing appropriate risk strategies and processes to
manage TD’s exposure to key risks. TD’s major risk categories are:
Strategic Risk, Credit Risk, Market Risk, Liquidity Risk, Operational Risk,
Insurance Risk, Regulatory and Legal Risk, Capital Adequacy Risk, and
Reputational Risk.
Major Risk Categories
Strategic
Risk
Credit
Risk
Market
Risk
Liquidity
Risk
Operational
Risk
Insurance
Risk
Regulatory
& Legal Risk
Capital
Adequacy
Risk
Reputational
Risk