Bank of America 2005 Annual Report Download - page 83

beginning on page 73, address in more detail the specific procedures, measures and analyses of the major categories of
risk that we manage.
Strategic Risk Management
The Board provides oversight for strategic risk through the CEO and the Finance Committee. We use an integrated
business planning process to help manage strategic risk. A key component of the planning process aligns strategies,
goals, tactics and resources. The process begins with an assessment that creates a plan for the Corporation, setting the
corporate strategic direction. The planning process then cascades through the business units, creating business unit
plans that are aligned with the Corporation’s direction. Tactics and metrics are monitored to ensure adherence to the
plans. As part of this monitoring, business units perform a quarterly self-assessment further described in the
Operational Risk Management section beginning on page 73. This assessment looks at changing market and business
conditions, and the overall risk in meeting objectives. Corporate Audit in turn monitors, and independently reviews and
evaluates, the plans and self-assessments.
One of the key tools for managing strategic risk is capital allocation. Through allocating capital, we effectively
manage each business segment’s ability to take on risk. Review and approval of business plans incorporates approval of
capital allocation, and economic capital usage is monitored through financial and risk reporting.
Liquidity Risk and Capital Management
Liquidity Risk
Liquidity is the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and
business operations, and meet contractual obligations through unconstrained access to funding at reasonable market
rates. Liquidity management involves forecasting funding requirements and maintaining sufficient capacity to meet the
needs and accommodate fluctuations in asset and liability levels due to changes in our business operations or
unanticipated events. Sources of liquidity include deposits and other customer-based funding, wholesale market-based
funding, and liquidity provided by the sale or securitization of assets.
We manage liquidity at two levels. The first is the liquidity of the parent company, which is the holding company
that owns the banking and nonbanking subsidiaries. The second is the liquidity of the banking subsidiaries. The
management of liquidity at both levels is essential because the parent company and banking subsidiaries each have
different funding needs and sources, and each are subject to certain regulatory guidelines and requirements. Through
ALCO, the Finance Committee is responsible for establishing our liquidity policy as well as approving operating and
contingency procedures, and monitoring liquidity on an ongoing basis. Corporate Treasury is responsible for planning
and executing our funding activities and strategy.
In order to ensure adequate liquidity through the full range of potential operating environments and market
conditions, we conduct our liquidity management and business activities in a manner that will preserve and enhance
funding stability, flexibility, and diversity. Key components of this operating strategy include a strong focus on
customer-based funding, maintaining direct relationships with wholesale market funding providers, and maintaining
the ability to liquefy certain assets when, and if, requirements warrant.
We develop and maintain contingency funding plans for both the parent company and bank liquidity positions.
These plans evaluate our liquidity position under various operating circumstances and allow us to ensure that we would
be able to operate though a period of stress when access to normal sources of funding is constrained. The plans project
funding requirements during a potential period of stress, specify and quantify sources of liquidity, outline actions and
procedures for effectively managing through the problem period, and define roles and responsibilities. They are reviewed
and approved annually by ALCO.
Our borrowing costs and ability to raise funds are directly impacted by our credit ratings. The credit ratings of Bank
of America Corporation and Bank of America, National Association (Bank of America, N.A.) are reflected in the table
below.
Table 7
Credit Ratings
December 31, 2005
Bank of America Corporation Bank of America, N.A.
Senior
Debt Subordinated Debt Commercial Paper Short-term Borrowings Long-term Debt
Moody’s ........................... Aa2 Aa3 P-1 P-1 Aa1
Standard & Poor’s .................. AA- A+ A-1+ A-1+ AA
Fitch, Inc. ......................... AA- A+ F1+ F1+ AA-
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