Bank of America 2005 Annual Report Download - page 82

appropriate. These reports roll up to executive management to ensure appropriate risk management and oversight, and
to identify enterprise-wide issues. Our management processes, structures and policies aid us in complying with laws and
regulations and provide clear lines for decision-making and accountability. Wherever practical, we attempt to house
decision-making authority as close to the transaction as possible while retaining supervisory control functions from both
in and outside of the lines of business.
The Risk Management organization translates approved business plans into approved limits, approves requests for
changes to those limits, approves transactions as appropriate, and works closely with lines of business to establish and
monitor risk parameters. Risk Management has assigned a Risk Executive to each of the lines of business who is
responsible for the oversight of all risks associated with that line of business. In addition, Risk Management has
assigned Risk Executives to monitor enterprise-wide credit, market and operational risks.
Corporate Audit provides an independent assessment of our management and internal control systems. Corporate
Audit activities are designed to provide reasonable assurance that resources are adequately protected; significant
financial, managerial and operating information is materially complete, accurate and reliable; and employees’ actions
are in compliance with corporate policies, standards, procedures, and applicable laws and regulations.
We use various methods to manage risks at the line of business levels and corporate-wide. Examples of these
methods include planning and forecasting, risk committees and forums, limits, models, and hedging strategies. Planning
and forecasting facilitates analysis of actual versus planned results and provides an indication of unanticipated risk
levels. Generally, risk committees and forums are comprised of lines of business, risk management, treasury,
compliance, legal and finance personnel, among others, who actively monitor performance against plan, limits, potential
issues, and introduction of new products. Limits, the amount of exposure that may be taken in a product, relationship,
region or industry, seek to align risk goals with those of each line of business and are part of our overall risk
management process to help reduce the volatility of market, credit and operational losses. Models are used to estimate
market value and net interest income sensitivity, and to estimate expected and unexpected losses for each product and
line of business, where appropriate. Hedging strategies are used to manage the risk of borrower or counterparty
concentration risk and to manage market risk in the portfolio.
The formal processes used to manage risk represent only one portion of our overall risk management process.
Corporate culture and the actions of our associates are also critical to effective risk management. Through our Code of
Ethics, we set a high standard for our associates. The Code of Ethics provides a framework for all of our associates to
conduct themselves with the highest integrity in the delivery of our products or services to our customers. We instill a
risk-conscious culture through communications, training, policies, procedures, and organizational roles and
responsibilities. Additionally, we continue to strengthen the linkage between the associate performance management
process and individual compensation to encourage associates to work toward corporate-wide risk goals.
Oversight
The Board evaluates risk through the Chief Executive Officer (CEO) and three committees. The Finance Committee,
a committee appointed by the Board, establishes policies and strategies for managing the strategic, liquidity, credit,
market and operational risks to corporate earnings and capital. The Asset Quality Committee, a Board committee,
reviews credit and selected market risks; and the Audit Committee, a Board committee, provides direct oversight of the
corporate audit function and the independent registered public accounting firm. Additionally, senior management
oversight of our risk-taking and risk management activities is conducted through four senior management committees:
the Risk and Capital Committee (RCC), the Asset and Liability Committee (ALCO), the Compliance and Operational
Risk Committee (CORC) and the Credit Risk Committee (CRC). The RCC, a senior management committee, reviews
corporate strategies and corporate objectives, evaluates business performance, and reviews business plans, including
capital allocation, for the Corporation and for major businesses. The ALCO, a subcommittee of the Finance Committee,
provides oversight for Corporate Treasury’s and Corporate Investment’s process of managing interest rate risk,
otherwise known as the ALM process, and reviews ALM and credit hedging activities. ALCO also approves limits for
trading activities and manages the risk of loss of value and related Net Interest Income of our trading activities. The
CORC, a subcommittee of the Finance Committee, provides oversight and consistent communication of operational and
compliance issues. The CRC, a subcommittee of the Finance Committee, establishes corporate credit practices and
limits, including industry and country concentration limits and approval requirements. The CRC also reviews asset
quality results versus plan, portfolio management, and the adequacy of the allowance for credit losses. Each committee
and subcommittee has the ability to delegate authority to officers of subcommittees to manage specific risks.
Management continues to direct corporate-wide efforts to address the Basel Committee on Banking Supervision’s
new risk-based capital standards (Basel II). The Finance Committee and the Audit Committee provide oversight of
management’s plans including the Corporation’s preparedness and compliance with Basel II. For additional information,
see Basel II on page 49 and Note 15 of the Consolidated Financial Statements.
The following sections, Strategic Risk Management, Liquidity Risk and Capital Management, Credit Risk
Management beginning on page 49, Market Risk Management beginning on page 65 and Operational Risk Management
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