GE 2015 Annual Report Download - page 142

RISK MANAGEMENT
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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 delegations of authority, 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.
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GE CAPITAL RISK MANAGEMENT & MITIGATION
GE Capital promotes a strong culture of risk management, combined with a risk framework that effectively supports appropriate risk
awareness, behaviors and sound risk-based decision making. GE &DSLWDO¶V risk framework recognizes that effective and comprehensive
risk management must include three distinct lines of defense made up of GE &DSLWDO¶V business units, Corporate Risk Management and
internal audit function.
Business units own and manage risk as a first line of defense with deep risk expertise. The GE Capital Corporate Risk Management
function provides independent oversight and challenge as a second line of defense. The senior risk professionals have, on average,
over 30 years of experience. GE Capital Audit provides the third line of defense.
Corporate Risk Management leverages the risk infrastructure in each of GE &DSLWDO¶V business units, which have adopted an approach
that corresponds to GE &DSLWDO¶V overall risk policies, procedures and review mechanisms. GE &DSLWDO¶V risk infrastructure is designed
to manage all risks relevant to its business environment that, if they materialized, could prevent GE Capital from achieving its risk
objectives or result in losses. These risks comprise GE &DSLWDO¶V 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 enhance its risk management processes consistent with the heightened supervisory expectations applicable to
it as 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 enterprise initiatives including capital planning, models,
valuations and regulatory reporting.
The GE Risk Committee and GE Capital Board establish GE &DSLWDO¶V risk appetite and oversee its risk management framework and
risk assessment and management processes. All participants in the GE Capital risk management process must comply with approval
limits established by the GE Risk Committee and the GE Capital Board or within the business units pursuant to delegations of authority,
and the GE Risk Committee and the GE Capital Board retain approval authority for significant acquisitions, dispositions, borrowings and
investments.
GE &DSLWDO¶V Enterprise Risk Management Committee (ERMC), which comprises the most senior leaders of GE Capital, oversees the
implementation of GE &DSLWDO¶V risk appetite, and senior PDQDJHPHQW¶V establishment of appropriate systems (including policies,
procedures, and management committees) to ensure enterprise risks are effectively identified, measured, monitored, and controlled.
The ERMC has delegated the management of specific risks to various sub-committees, including the Operational Risk Management
Committee, Asset-Liability Committee, Capital Planning Committee, Allowance and Valuation Risk Committee, Credit and Investment
Risk Committee, Model Risk Management Committee, New Product Introduction Committee and Compliance Committee. A similar
committee structure, where appropriate, is replicated at the business unit level.
The GE Risk Committee and the GE Capital Board periodically review and approve key risk management policies and they meet with
GE Capital senior management throughout the year. At these meetings, GE Capital senior management focuses on the risk issues,
strategy and governance of the business.
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114 GE 2015 FORM 10-K