eTrade 2012 Annual Report Download - page 69

We manage risk through a governance structure involving senior management and several risk committees
that include members of the Board of Directors. We use senior management-level risk committees to help ensure
that business decisions are executed within our stated risk profile and consistent with the RAS. A variety of
methodologies and measures are used to monitor, quantify, assess and forecast risk. Measurement criteria,
methodologies and calculations are reviewed periodically to assure that risks are represented appropriately.
Certain risks are described in the RAS and related policies which establish processes and limits. The RAS and
these policies are reviewed, challenged and approved by the Board of Directors on at least an annual basis.
The Risk Oversight Committee, which consists of members of the Board of Directors, reviews, challenges
and approves the RAS and risk policies each year, receives regular reports on the status of certain limits and
KRIs as well as discusses certain key risks. In addition to this Board-level committee, various management risk
committees and departments throughout the Company aid in the identification, measurement and management of
risks, including:
•Enterprise Risk Management Committee—the Enterprise Risk Management Committee (“ERMC”) is
the senior-most risk management committee and has primary responsibility for approving risk limits
and monitoring the Company’s risk management activities. The ERMC also resolves issues escalated
by the other risk management committees and in certain instances approves exceptions to risk policies.
•Asset Liability Committee—the Asset Liability Committee (“ALCO”) has primary responsibility for
monitoring of market, interest rate and liquidity risk, and recommends related risk limits to be
approved by the ERMC.
•Credit Committee—the Credit Committee has responsibility for monitoring credit risks and approving
risk limits or recommending risk limits to be approved by the ERMC.
•Operational Risk Committee—the Operational Risk Committee (“ORC”) has responsibility for the
oversight and management of the operational risks in all business lines, legal entities, and departments,
including the development and reporting of key operational risk metrics. The ORC has oversight of
operational risk management in the existing enterprise risk categories, including: transactions execution
risk, security risk, legal and regulatory risks, systems and information technology risks, and
employment risks.
Credit Risk Management
Credit risk is the risk of loss arising from the inability or failure of a borrower or counterparty to meet its
credit obligations. We are exposed to credit risk in the following areas:
• We hold credit risk exposure in our loan portfolio. We are not currently originating or purchasing loans
for investment. Even though the portfolio is running off, losses are likely to remain significant.
• We hold credit risk exposure to non-agency CMOs in our investment securities portfolio. We are not
currently purchasing non-agency CMOs for investment. Even though the portfolio is running off,
impairments are likely to continue in the future.
• We extend margin loans to our brokerage customers which exposes us to the risk of credit losses in the
event we cannot liquidate collateral during significant market movements.
• We engage in financial transactions with counterparties which expose us to credit losses in the event a
counterparty cannot meet its obligations. These financial transactions include our invested cash,
securities lending, repurchase and reverse repurchase agreements and derivatives contracts, as well as
the settlement of trades.
Credit risk is monitored by our Credit Committee, whose objective is to evaluate current and expected credit
performance of the Company’s loans, investments, borrowers and counterparties relative to market conditions
and the probable impact on the Company’s financial performance. The Credit Committee establishes credit risk
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