Bank of America 2011 Annual Report Download - page 72

70 Bank of America 2011
Market Risk Capital
Market risk reflects the potential loss in the value of financial
instruments or portfolios due to movements in interest and
currency exchange rates, equity and futures prices, the implied
volatility of interest rates, credit spreads and other economic and
business factors. Bank of America’s primary market risk exposures
are in its trading portfolio, equity investments, MSRs and the
interest rate exposure of its core balance sheet. Economic capital
is determined by utilizing the same models the Corporation used
to manage these risks including, for example, Value-at-Risk (VaR),
simulation, stress testing and scenario analysis. See page 106
for additional information on Market Risk Management.
Operational Risk Capital
We calculate operational risk capital at the business unit level
using actuarial-based models and historical loss data. We
supplement the calculations with scenario analysis and risk control
assessments. See Operational Risk Management on page 113
for more information.
Common Stock Dividends
Table 16 is a summary of our declared quarterly cash dividends
on common stock during 2011 and through February 23, 2012.
Table 16
Declaration Date
January 11, 2012
November 18, 2011
August 22, 2011
May 11, 2011
January 26, 2011
Common Stock Cash Dividend Summary
Record Date
March 2, 2012
December 2, 2011
September 2, 2011
June 3, 2011
March 4, 2011
Payment Date
March 23, 2012
December 23, 2011
September 23, 2011
June 24, 2011
March 25, 2011
Dividend
Per Share
$0.01
0.01
0.01
0.01
0.01
Enterprise-wide Stress Testing
As a part of our core risk management practices, we conduct
enterprise-wide stress tests on a periodic basis to better
understand balance sheet, earnings, capital and liquidity
sensitivities to certain economic and business scenarios,
including economic and market conditions that are more severe
than anticipated. These enterprise-wide stress tests provide an
understanding of the potential impacts from our risk profile on our
balance sheet, earnings, capital and liquidity and serve as a key
component of our capital and risk management practices.
Scenarios are selected by a group comprised of senior business,
risk and finance executives. Impacts to each business from each
scenario are then determined and analyzed, primarily by leveraging
the models and processes utilized in everyday management
routines. Impacts are assessed along with potential mitigating
actions that may be taken. Analysis from such stress scenarios
is compiled for and reviewed through our Chief Financial Officer
Risk Committee (CFORC), Asset Liability and Market Risk
Committee (ALMRC) and the Board’s Enterprise Risk Committee
(ERC) and serves to inform decision making by management and
the Board. We have made substantial investments to establish
stress testing capabilities as a core business process.
Liquidity Risk
Funding and Liquidity Risk Management
We define liquidity risk as the potential inability to meet our
contractual and contingent financial obligations, on- or off-balance
sheet, as they come due. Our primary liquidity objective is to ensure
adequate funding for our businesses throughout market cycles,
including periods of financial stress. To achieve that objective, we
analyze and monitor our liquidity risk, maintain excess liquidity and
access diverse funding sources including our stable deposit base.
We define excess liquidity as readily available assets, limited to
cash and high-quality, liquid, unencumbered securities that we can
use to meet our funding requirements as those obligations arise.
Global funding and liquidity risk management activities are
centralized within Corporate Treasury. We believe that a centralized
approach to funding and liquidity risk management enhances our
ability to monitor liquidity requirements, maximizes access to
funding sources, minimizes borrowing costs and facilitates timely
responses to liquidity events.
The Enterprise Risk Committee approves the Corporation’s
liquidity policy and contingency funding plan, including establishing
liquidity risk tolerance levels. The ALMRC, in conjunction with the
Board and its committees, monitors our liquidity position and
reviews the impact of strategic decisions on our liquidity. ALMRC
is responsible for managing liquidity risks and ensuring exposures
remain within the established tolerance levels. ALMRC delegates
additional oversight responsibilities to the CFORC, which reports
to the ALMRC. The CFORC reviews and monitors our liquidity
position, cash flow forecasts, stress testing scenarios and results,
and implements our liquidity limits and guidelines. For more
information, see Board Oversight of Risk on page 64. Under this
governance framework, we have developed certain funding and
liquidity risk management practices which include: maintaining
excess liquidity at the parent company and selected subsidiaries,
including our bank and broker/dealer subsidiaries; determining
what amounts of excess liquidity are appropriate for these entities
based on analysis of debt maturities and other potential cash
outflows, including those that we may experience during stressed
market conditions; diversifying funding sources, considering our
asset profile and legal entity structure; and performing contingency
planning.
Global Excess Liquidity Sources and Other
Unencumbered Assets
We maintain excess liquidity available to Bank of America
Corporation, or the parent company, and selected subsidiaries in
the form of cash and high-quality, liquid, unencumbered securities.
These assets, which we call our Global Excess Liquidity Sources,
serve as our primary means of liquidity risk mitigation. Our cash
is primarily on deposit with central banks, such as the Federal
Reserve. We limit the composition of high-quality, liquid,
unencumbered securities to U.S. government securities, U.S.
agency securities, U.S. agency MBS and a select group of non-
U.S. government and supranational securities. We believe we can
quickly obtain cash for these securities, even in stressed market
conditions, through repurchase agreements or outright sales. We
hold our Global Excess Liquidity Sources in entities that allow us
to meet the liquidity requirements of our global businesses, and
we consider the impact of potential regulatory, tax, legal and other
restrictions that could limit the transferability of funds among
entities.