GE 2014 Annual Report Download - page 130

110 GE 2014 FORM 10-K
RISK MANAGEMENT
Depending on the nature of the risk involved and the particular business or function affected, we use a wide variety of risk
mitigation strategies, including delegation of authorities, standardized processes and strategic planning reviews, operating
reviews, insurance, and hedging. As a matter of policy, we generally hedge the risk of fluctuations in foreign currency
exchange rates, interest rates and commodity prices. Our service businesses employ a comprehensive tollgate process
leading up to and through the execution of a contractual service agreement to mitigate legal, financial and operational risks.
Furthermore, we centrally manage some risks by purchasing insurance, the amount of which is determined by balancing the
level of risk retained or assumed with the cost of transferring risk to others. We manage the risk of fluctuations in economic
activity and customer demand by monitoring industry dynamics and responding accordingly, including by adjusting capacity,
implementing cost reductions and engaging in mergers, acquisitions and dispositions.
GE CAPITAL RISK MANAGEMENT & MITIGATION
GE Capital acknowledges risk-taking as a fundamental characteristic of providing financial services. It is inherent to its
business and arises in lending, leasing and investment transactions undertaken by GE Capital.
GE Capital’s philosophy is to have a strong culture of risk management, combined with a sound risk framework that effectively
supports appropriate risk awareness, behaviors and sound risk-based decision making. GE Capital recognizes that effective
and comprehensive risk management must include three distinct lines of defense including Business Units, Corporate Risk
Management and Internal Audit.
Business Units own and manage risk as a first line of defense with deep risk expertise. The GECC Corporate Risk
Management function provides independent oversight and challenge as a second line of defense. Those responsible for risk
management activities across GECC, including staff in both the first and second lines of defense, are referred to collectively as
“global risk management.” The senior risk professionals have, on average, over 30 years of experience. Internal Audit provides
the third line of defense.
Corporate Risk Management leverages the risk infrastructure in each of our Business Units, which have adopted an approach
that corresponds to GE Capital’s overall risk policies, guidelines and review mechanisms. GE Capital’s risk infrastructure is
designed to manage all risks relevant to its business environment, which if materialized, could prevent GE Capital from
achieving its risk objectives and/or result in losses. These risks are defined as GE Capital’s Enterprise Risk Universe, which
includes the following risks: strategic, liquidity, credit and investment, market, compliance and operational (including financial,
information technology, human resources and legal). Reputational risk is considered and managed across each of the
categories.
GE Capital continues to make significant investments to enhance its risk management infrastructure and processes consistent
with heightened supervisory expectation befitting a nonbank SIFI. As a result, GE Capital is executing on strategic programs
and an extensive number of deliverables to improve data and reporting systems, risk and governance processes, and other
large scale, critical initiatives including capital planning, models, valuations and regulatory reporting. During 2014, GE Capital
increased the number of risk professionals by 12%.
The GE Risk Committee and GECC Board oversee GE Capital’s risk appetite, risk assessment and management processes.
The GE Risk Committee and the GECC Board oversee the GE Capital risk management framework, with the GECC Board
approving all significant acquisitions and dispositions as well as significant borrowings and investments. The GE Risk
Committee and the GECC Board exercise oversight of investment activities in the Business Units through delegations of
authority. All participants in the GE Capital risk management process must comply with approval limits established by the GE
Risk Committee and the GECC Board.