Bank of America 2007 Annual Report Download - page 47
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Our ALM activities maintain an overall interest rate risk management
strategy that incorporates the use of interest rate contracts to manage
fluctuations in earnings that are caused by interest rate volatility. Our goal
is to manage interest rate sensitivity so that movements in interest rates
do not significantly adversely affect net interest income. The results of the
business segments will fluctuate based on the performance of corporate
ALM activities. Some ALM activities are recorded in the businesses (e.g.,
Deposits) such as external product pricing decisions, including deposit
pricing strategies, as well as the effects of our internal funds transfer pric-
ing process. The net effects of other ALM activities are reported in each of
our segments under ALM/Other. In addition, certain residual impacts of
the funds transfer pricing process are retained in All Other.
Certain expenses not directly attributable to a specific business
segment are allocated to the segments based on pre-determined means.
The most significant of these expenses include data processing costs,
item processing costs and certain centralized or shared functions. Data
processing costs are allocated to the segments based on equipment
usage. Item processing costs are allocated to the segments based on the
volume of items processed for each segment. The costs of certain central-
ized or shared functions are allocated based on methodologies which
reflect utilization.
Equity is allocated to business segments and related businesses
using a risk-adjusted methodology incorporating each unit’s credit, market,
interest rate and operational risk components. The Corporation as a whole
benefits from risk diversification across the different businesses. This
benefit is reflected as a reduction to allocated equity for each segment
and is recorded in ALM/Other. The nature of these risks is discussed fur-
ther beginning on page 65. Average equity is allocated to the business
segments and related businesses, and is impacted by the portion of
goodwill that is specifically assigned to the businesses and the
unallocated portion of goodwill that resides in ALM/Other.
Bank of America 2007
45