eTrade 2012 Annual Report Download - page 71

We continue to review the mortgage loan portfolio in order to identify loans to be repurchased by the
originator. Our review is primarily focused on identifying loans with violations of transaction representations and
warranties or material misrepresentation on the part of the seller. Any loans identified with these deficiencies are
submitted to the original seller for repurchase. During the second quarter of 2012, we agreed to settlements with
two particular originators specific to loans sold to us by those originators. One-time payments of $11.2 million
were made to us to satisfy in full all pending and future repurchase requests with those specific originators. We
applied the full amount during the second quarter of 2012 to the allowance for loan losses, resulting in a
corresponding reduction to net charge-offs as well as our provision for loan losses. Approximately $41.7 million
of loans were repurchased by or settled with the original sellers for the year ended December 31, 2012. A total of
$408.5 million of loans were repurchased by the original sellers, including global settlements, since we actively
started reviewing our purchased loan portfolio beginning in 2008.
Interest Rate Risk Management
Interest rate risks are monitored and managed by the ALCO, including the analysis of earnings sensitivity to
changes in market interest rates under various scenarios. 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.
Liquidity Risk Management
Liquidity risk is monitored by the ALCO. We have in place a comprehensive set of liquidity and funding
policies as well as contingency funding plans that are intended to maintain our flexibility to address liquidity
events specific to us or the market in general. See Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital Resources for additional information.
Market Risk Management
Market risks are monitored through a sub-committee of the ALCO. These risks include holding positions
associated with principal trading transactions in our market making business, reduced spreads in securities
pricing, and in our limited securities underwriting activities. See Item 7A. Quantitative and Qualitative
Disclosures about Market Risk for additional information about our market risks.
Operational Risk Management
Operational risks exist in most areas of the Company from processing a transaction to customer service. We
are also exposed to fraud risk from unauthorized use of customer and corporate funds and resources. We monitor
customer transactions and use scoring tools which prevent a significant number of fraudulent transactions on a
daily basis. However, new techniques and strategies are constantly being developed by perpetrators to commit
fraud. In order to minimize this threat, we offer our customers various security measures, including a token based
multi-factor verification system.
The failure of a third party vendor to adequately meet its responsibilities which could result in financial loss
and impact our reputation is another significant operational risk. The Vendor Management group regularly
reports to the ERMC and monitors our vendor relationships. The vendor risk identification process includes
reviews of contracts, financial soundness of providers, information security, business continuity and risk
management scoring.
Strategic Risk Management
Strategic risks are reviewed, challenged and monitored by various risk committees, the ERMC and Board
committees. These risks include potential loss of customers or adverse changes in customer mix in the brokerage
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