eTrade 2006 Annual Report Download - page 53

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Other Liquidity Matters
We currently anticipate that our available cash resources and credit will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least the next 12 months. We may need to raise
additional funds in order to support more rapid expansion, develop new or enhanced products and services,
respond to competitive pressures, acquire businesses or technologies or take advantage of unanticipated
opportunities.
RISK MANAGEMENT
As a financial services company, we are exposed to risks in every component of our business. Transactions
including the opening of an account, processing of a trade, acceptance of a deposit, hiring a new employee and
acquiring a company, all involve a certain amount of risk. The identification and management of risks are the
keys to effective risk management. Our risk management practices support decision-making, improve the success
rate for new initiatives and strengthen the organization. Our goal is to balance risks and rewards through effective
risk management. We do not believe that risks can be completely eliminated; however, we do believe risks can
be identified and managed within the Company’s risk tolerance.
We manage risk through a governance structure involving the various boards, senior management and
several risk committees. We use management level risk committees to help ensure that business decisions are
executed within our desired risk profile.
The Corporate Risk Committee, consisting of senior management executives, monitors risks throughout the
Company. In addition to this committee, various departments throughout the Company aid in the identification
and management of risks. These departments include internal audit, compliance, finance, legal, treasury, credit
and risk management.
Interest Rate Risk Management
Interest rate risk is the risk of loss from adverse changes in interest rates. Interest rate risks are monitored
and managed by the E*TRADE Bank’s Asset Liability Committee (“ALCO”). The ALCO reviews balance sheet
trends, market interest rate and sensitivity analyses. The analysis of interest sensitivity to changes in market
interest rates under various scenarios is reviewed by ALCO. The scenarios assume both parallel and non-parallel
shifts in the yield curve. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk for additional
information about our interest rate risks.
Credit Risk Management
Credit risk is the risk of loss resulting from an adverse change in a borrower’s ability to repay their loan.
Loan and margin advances are underwritten based on the creditworthiness of the borrower and the fair market
value of the underlying collateral, taking into consideration any events that may affect the value of that collateral.
The level of credit risk in an individual loan will vary depending on the credit characteristics of the borrower, the
magnitude of the transaction and the quality of the collateral, in addition to the terms of the transaction. These
risks are monitored at the Bank level by the Credit Risk Committee.
The Credit Risk Committee is responsible for the overall credit risk management of the Bank. This committee
reports to the ALCO. The credit risk management process encompasses the entire underwriting and review process
from comprehensive credit policies to loan review and regulatory exams. The Credit Risk Committee reviews detail
risk measurement and modeling results, and monitors the loan audit review process. The Company conducts
independent reviews of the underwriting process for originated and purchased loans. The Credit Risk Committee
regularly reviews the results of those reviews. In addition, regulatory examiners review and perform detailed tests of
our credit underwriting, loan administration and allowance process.
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