Bank of America 2015 Annual Report Download - page 94

92 Bank of America 2015
portfolios to account for correlations among risk factors. All trading
limits are approved at least annually. Approved trading limits are
stored and tracked in a centralized limits management system.
Trading limit excesses are communicated to management for
review. Certain quantitative market risk measures and
corresponding limits have been identified as critical in the
Corporation’s Risk Appetite Statement. These risk appetite limits
are reported on a daily basis and are approved at least annually
by the ERC and the Board.
In periods of market stress, Global Markets senior leadership
communicates daily to discuss losses, key risk positions and any
limit excesses. As a result of this process, the businesses may
selectively reduce risk.
Table 56 presents the total market-based trading portfolio VaR
which is the combination of the covered positions trading portfolio
and the impact from less liquid trading exposures. Covered
positions are defined by regulatory standards as trading assets
and liabilities, both on- and off-balance sheet, that meet a defined
set of specifications. These specifications identify the most liquid
trading positions which are intended to be held for a short-term
horizon and where the Corporation is able to hedge the material
risk elements in a two-way market. Positions in less liquid markets,
or where there are restrictions on the ability to trade the positions,
typically do not qualify as covered positions. Foreign exchange and
commodity positions are always considered covered positions,
except for structural foreign currency positions that we choose to
exclude with prior regulatory approval. In addition, Table 56
presents our fair value option portfolio, which includes the funded
and unfunded exposures for which we elect the fair value option,
and their corresponding hedges. The fair value option portfolio
combined with the total market-based trading portfolio VaR
represents the Corporation’s total market-based portfolio VaR.
Additionally, market risk VaR for trading activities as presented in
Table 56 differs from VaR used for regulatory capital calculations
due to the holding period being used. The holding period for VaR
used for regulatory capital calculations is 10 days, while for the
market risk VaR presented below it is one day. Both measures
utilize the same process and methodology.
The total market-based portfolio VaR results in Table 56 include
market risk from all business segments to which the Corporation
is exposed, excluding CVA and DVA. The majority of this portfolio
is within the Global Markets segment.
Table 56 presents year-end, average, high and low daily trading
VaR for 2015 and 2014 using a 99 percent confidence level.
Table 56 Market Risk VaR for Trading Activities
2015 2014
(Dollars in millions)
Year
End Average High (1) Low (1)
Year
End Average High (1) Low (1)
Foreign exchange $ 10 $ 10 $ 42 $ 5 $ 13 $ 16 $ 24 $ 8
Interest rate 17 25 42 14 24 34 60 19
Credit 32 35 46 27 43 52 82 32
Equity 18 16 33 9 16 17 32 11
Commodity 458388106
Portfolio diversification (36) (46) — — (56) (78) — —
Total covered positions trading portfolio 45 45 66 26 48 49 86 33
Impact from less liquid exposures 3 8—— 7 7——
Total market-based trading portfolio 48 53 74 31 55 56 101 38
Fair value option loans 35 26 36 17 35 31 40 21
Fair value option hedges 17 14 22 8 21 14 23 8
Fair value option portfolio diversification (35) (26) — — (37) (24) — —
Total fair value option portfolio 17 14 19 10 19 21 28 15
Portfolio diversification (4) (6) — — (7) (12) — —
Total market-based portfolio $ 61 $ 61 $ 85 $ 41 $ 67 $ 65 $ 120 $ 44
(1) The high and low for each portfolio may have occurred on different trading days than the high and low for the components. Therefore the impact from less liquid exposures and the amount of portfolio
diversification, which is the difference between the total portfolio and the sum of the individual components, are not relevant.
The average total market-based trading portfolio VaR decreased during 2015 primarily due to reduced exposure to the credit and
interest rate markets, partially offset by a reduction in portfolio diversification.