1 Input to Risk Catalogue 16

CIBC RSI 3 2 Risk Assessment Scorecard 16

3 Review and Validation 16
RSI Overview Deliverables 3 Output of assessment process 16
Risk Model & Sensitivities 3 OR Tools 17
Interest Rate Risk 3 OR Management System 17
Credit Spread Risk 3 Operational Risk Management System 17
Analytics 3 OR in the context of risk 17
Analytics OLSM 3 Key Risk Indicator (KRI) 17
Market Risk 3 12 KRI 17
Market Risk Data 3 Objectives, Strategies, Risks, KRI’s 17
Incremental Risk Charge (IRC) 3 KRIs to Inform About Risk of Debt Covenant Default 17
Regulatory changes 3 KRI for Operational Risk 18
Metrics to calculate regulatory capital for market risks 3 Enterprise Risk Management Schematic 18
Stressed VaR 4
VaR, IRC, Stress test Performance 4 HOOPP 18
Back testing 4
EOD Feed schedule 5 Middle office processes 18
Enhanced VaR Tactical 5 Collateral Business 18
IMA (Internal Model Approach) Documents to be submitted 5 Straight-through Processing STP 18
OSFI Initiatives 5 Dodd-Frank 18
Business Case 5 HOOP considerations 18
Plan 5 HOOPP Plan 18
Work streams 6 System capabilities for OTC derivatives central trading and clearing 18
Credit Risk 6 Straight Through Processing STP 18
Requirements 6 Market infrastructure 19
Credit Risk Use Case 6 HOOPP Process for transacting & clearing a trade 19
Credit Risk Exposure 6 SIMCORP 19
Credit Risk Terminology 6 On SCD EQUITY 19
Credit Valuation Adjustment (CVA) 6 On Collateral 19
CIBC Risk systems 7 On SCD Fixed Income 19
Voyager (Market Risk) 7 Functions & Modules 20
TRACS (Credit Risk) 7
CIBC 5 Asset Classes by 29 Systems 8 AIDC Financial Management and Treasury 20
SUNGARD 9
MUREX 9
Manulife OTTI (Other than Temporarily Impaired) 20
Risk IT Architecture 10
Risk Data Management 10
AIA/AIG 20
Financial Risk Topics 11 P&C 20
AIG Credit Card 20
Stress testing framework 11
Risk appetite 11
Liquidity Risk 12 CIBC Control 20
Overview 12 CIBC 20 Services (Financial) 20
Cash flow landscape 12 CIBC Processes (FCU) 20
Fund transfer pricing with liquidity risk 12 CIBC 26 Processes (OPC) – 113 Sub-processes 21
Contingent liquidity pricing for a facility 12 CIBC Legislative Compliance Management (LCM) 22
Contingent Cash Flow Funding Risk (CCFR) for derivatives 12
Non-trading risk 12
British Columbia Workplace Technology Services 22
WESTPAC Definition 12
Non-Trading Book Exposures in Equities (Lloyds bank) 12 Balance Scorecard and Performance Measures 22
Basel III 12 Learning & Growth - Customers 22
Overview 12 Internal Business Processes and Financial 22
Regulatory Objectives 13 Corporate Accounting System (CAS) 23
Timeline 14 Business Transformation Initiative (BTI) 23

Enterprise Risk 14 CIBC Mellon 24

ERM framework 14 History 24
Risk Appetite, Assessment, Measurement 14 Business & Process 24
Risk Type - Risk Management 14 Distribution and service fees 24
Risk Models 14 MIS Dashboards 24
Identifying Top Risks 15 Balance Scorecard Internal - GSS Trade Settlements 24
Financial Regulation 15 Balance Scorecard Internal - CMT Securities Transfer 24
Balance Scorecard Internal - CMT & GSS Assets under Administration 24
Operational Risk 15 Balance Scorecard Finance 25
Balance Scorecard Client 25
COSO 15 Balance Scorecard Learning & Growth 25
Operational Risk 15 Scope 25
4 types of losses 15 Project Plan 25
BIS Definition 15
Risk Identification, Type, Cause 15
CIBC CAD Chief Accountant Scorecard 2005 25
Event, Category, Activity 16
Assessment Approach 16 Operations 25

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 Finance 25
Customer/Client 25
Growth 26

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 data) Feeds generates 76 market data feeds (34 feeds in MR) 30+ FO systems (1 feed 1
CIBC RSI system)
RSI Overview Deliverables Incremental Risk Charge (IRC)
What? Loss due to default/changes in quality at 99.9% CI over 1 year Phase 1 MC
Market Risk General MR, IRC, Equity & Debt Specific Risk, Stressed VaR, Stress Testing simulation of Merton structural model for default/credit migration Phase 2 MC simulation of
Trading Credit Risk CVA, Limits Monitoring, Stress Testing, Master Agreement Details, credit/equity states based on Stochastic Volatility model (stochastic price + variance process
Pre-Deal Check, Ratings Maintenance Trading Operational Risk Product Authorization, driven by Brownian motions with constant linear correlation) Phase 1 design
Limit Breaches, KRIs, Reporting Analytics VaR Methodology, Stress Testing, Model Parameterize correlation with concentration parameter to couple issuer/ market
Calibration, Exposure Modeling Economic & regulatory capital IRC enhancement concentrations to migrations and defaults Constant level of risk (same loss distribution over
Data/ reporting Data quality, Master data management, Derived historical data, liquidity horizon 3 months liquid within 1 year horizon) Aggregation/liquidity horizon
Unstructured data management, Standard/ad hoc reporting/analysis, Meta data
correlation – use hedge for sub-portfolios with multiple liquidity horizons Valuation –
Risk Model & Sensitivities principles (full valuation; same valuation by front and risk); for equities no model needed
DGVRT assumed MR factors log-normally distributed; statistical parameters based on 250 (prices simulated directly) Credit Spread & Mark-To-Market Adjustment - 2 credit spread
days of history; inputs (risk factor sensitivities, correlations, volatilities, average returns, types: CDS spread: bond spread, can differ in magnitude for technical reason; Bond
market prices of risk factors) HistSimm based on historical distribution of rolling 500 daily spreads: yield spread, asset swap spread, option adjusted spread (OAS or Z-spread),
changes in risk factors Debt Specific Risk DSR default + idiosyncratic spread risk - MC interpolated spread (I-spread) available on Bloomberg Plan Contingency (standardized
model with 4 components: 1 Marginal distribution calibration to estimate/ calibrate spread approach) Risk model (requirement, development, unit test) Market data (requirement,
return for each credit group 2 Correlation calculation 3 Preprocessing 4 Core Approach document, unit test) Trade position data (requirement, development, unit test, SIT, UAT,
Use spread simulation model; small spread moves  spread volatility risk, larger moves  Regression) Gap analysis Products (structured credit run-off portfolio) Position data
migrations and defaults; models total credit spread of individual bond as general spread + (instrument type, business entity for aggregation -- insufficient id of securitized position,
specific component; general spread from bond index given by observable index or inferred parallel effort to standardize DSR treatment, banking book/ securitization treatment)
as average credit spread of basket of bonds comprising a Credit Group; specific spread Market data (credit spreads per currency/sector/rating - insufficient sector coverage, better
component = difference between total credit spread inferred from bond’s observable price granularity)
and sectorial spread; use 90 Credit Groups of bond indices, baskets of traded bonds, Regulatory changes
spanning markets, economic sectors, credit qualities maturities; use MC simulation to
compute specific risk; join marginal distributions using copulae to model tail dependence
embedded within credit spread data; model sector and specific spread distributions using
Student’s t-distributions; calibrate historical bond index data to obtain distribution parameters
via moment matching Risk sensitivities (45) equity/ metal/ oil/ FX DGVRT, duration e.g.
base metal vega risk, CS idiosyncratic risk
Interest Rate Risk
IR Outright and Curve risk portfolio sensitivity to changes in yield curve (Frontier/
Voyager zero rate yield curves for sensitivity, VaR generation) IR Swap Spread risk
portfolio sensitivity to changes in spread between govt yields and swap yields IR Vega
risk sensitivity to changes in IR volatilities Total IR risk all IR risks + IR Theta with
correlations between IR components (zeroes, swap spreads, volatilities)
Credit Spread Risk
Due to change in spreads (bond index, government yields) Generic CS risk change in
spread (Treasuries, mapped bond index) Idiosyncratic CS risk change in spread (specific Metrics to calculate regulatory capital for market risks
issuer, mapped index) Total CS risk = Generic CS risk + Idiosyncratic CS risk assuming
zero correlation
Analytics
Analytics OLSM
(Optimized Least-Squares Monte Carlo) simulation to compute potential future exposure
(PFE) profile of derivatives with complex optionality for which no analytic approximation
exists; relies on Least-Squares approximation by Longstaff & Schwartz; traditionally
nested Monte Carlo MC or approx surrogate structured deal computationally expensive
& approximate work streams IR & FX basis risk, Equity Dividend, Volatility Skew, Monte
Carlo on Monte Carlo correlation risk equity-equity, commodity-commodity, commodity-FX
assets classes dividend risk measured through sensitivity based variance-covariance;
calculated for 1 bp change in dividend yield, applied to shocks based on dividend yield
volatilities; dividend yield volatilities for indices based on time series of forward dividend
yields and dividend yield volatilities for single stocks
Analytics Model gaps
Market Risk
Market Risk Data
Data groups IR market data Yield/zero curves for bonds, swaps (zero curves
bootstrapped from corresponding yield curves), spread curves, volatility cubes or surfaces,
basis spread curves Trading credit CDS spreads, CDS indices FX related FX spot rates,
FX volatility surface EQ related equity indices, common stock prices; equity volatility surfaces
Commodity related commodity spot prices, commodity forward/future price curves,
commodity price volatility surfaces Data structures Scalar asset spot prices FX spot
prices, equity spot prices, commodity spot prices bond prices 1-dim term structure curves
(1-dim vector data) IR yield/zero curves, IR spread curves, CDS spread curves, commodity
forward/futures curves, ATM FX implied volatilities, commodity price volatilities, ATM equity
implied volatilities 2-dim surfaces ATM IR implied volatility surfaces, equity implied volatility
skews, FX implied volatility skews 3-dim cubes IR implied volatility skew cubes Matrix
market data correlation metrics, transition probability metrics Trade data Instrument
(security term & conditions, Security, Debt, Option, Future, Forward) Instrument Type
(product type) Trade (daily trade position information) Structured Product, Cash Flow,
Schedule (average rate schedule, payment Schedule, reset schedule, amortizing schedule,
exercise schedule) Instrument state (daily basis ‘NEW’, ‘SG_DONE’,
‘SG_RESULTS_LOADED’) CIBC MHS (market data store) central repository for Voyager
(market risk minus specific risk), Euclid (specific risk), TRACS (credit risk) Types 1-market
data 2-variance/ covariance (derived market data) 3-statistical parameters (derived market

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IRC Tactical Simulate dynamic portfolio rebalancing Replace designated trades that roll off during
stress simulation with new trades per requirements (e.g. delta-hedged portfolios) Shock
curves via parallel or non-parallel shifts of curves and volatilities Create stress scenario
from historical market data moves by choosing start/end time

Engine calculate default risk + credit migration risk that are incremental to risks
captured in current VaR Trade Position Feeds leverage existing data feeds augmented Stressed VaR Tactical
with extra data elements Market Data new feed for CDS spread data Reporting Engine No new engine; DGVRT Parametric Model used as Phase I with calibration applied
Regulatory Capital calculation incorporated with new charge Hardware engine to run to stress period’s volatilities Trade Position Feeds No new position data is required
independently but integrated to existing environment Operation improve existing Market Data No new market data required but need to increase the length of the series in
operational procedure to monitor and report database to support “stressed” period selection Reporting new report Hardware no
Requirements IRC new hardware Operation improve existing operational
Track Credit Migration + Defaults of underlying & counterparties Multiple liquidity VaR, IRC, Stress test Performance
horizons (3 months - 1 year, time to sell/hedge in stressed market) Cover position
subject to capital charges for specific IR risk Include/exclude all listed equity, derivative
positions, securitization positions Impact of correlations/ clustering between default and
migration events (higher capital charge for concentrated portfolio, concentration under
stressed conditions) Exposures on non-netted basis (excepted long/ short positions on
same instrument) Basis risks (by product, capital structure, rating, maturity, vintage,
payout trigger) Impact of potential risks between maturity & liquidity horizon, default
risk, impact of optionality from price changes Constant level of risk modeling
Correlation & diversification between multiple obligors and obligor/ market risk factors
Risk mitigation & netting effects as required credit migration risk credit spread risk Back testing
equity price risk IRC at a 99.9% CI, over a 1 year time horizon age a portfolio of trades What? Compare theoretical VaR against actual P&L Basel framework periodically
for up to a 1 year period Re-investment logic at end of liquidity horizons to positions that compares portfolio or asset's daily VaR against daily P&L; model to generate the times of
will mature/roll-off during portfolio aging function VaR exceeding P&L equal to (1-alpha) * time periods for back testing Basel 3 zones
Stressed VaR Green Zone - 0 to 4 adverse exceptions out of 250 - no add-on factor Yellow Zone - 5
What? Measure VaR due abnormal market behavior during selected time period to 9 adverse exceptions out of 250 - add-on factor of from 0.40 to 0.85 Red Zone - 10 or
Approach Use existing models with current risk factor levels & current portfolio more adverse exceptions out of 250 - add-on factor of 1.00 Standards Bank level
Substitute [current risk factor volatilities & correlation structure] ➔ those from historical aggregate risk and risk by asset class measured by models used in capital adequacy
period with greatest VaR for portfolio For historical approach supplement actual historical calculations Daily back testing results at business & desk levels reported to CMRM
returns with antithetic returns For simulation approach replace marginal & joint risk factor management & line management; alert to new or unaccounted-for risks; routine quality
distributions in production ➔ those inferred from historically stressed period General controls for risk models and systems Report adverse SPL exceptions at bank-level to
Market Risk (GMR) Based on historical state changes from stressed period, sensitivity- OSFI within 1 business day Monthly analysis of SPL results submitted to OSFI for review
based portfolio valuation & current aggregation structures Augmented by antithetic Backtesting exceptions and average divergence (average difference between absolute
sampling & risk shocks at individual risk factors Data: use data with current systems; require value of SPL & VaR for all adverse exceptions) at bank-level ➔reported to OSFI quarterly
time series of risk factors (interest rates, spreads, prices, implied volatilities, etc.) in order to through Basel Capital Adequacy Return schedule 42 Backtesting comparison
generate historical shocks Equity Specific Risk (ESR) Based on decomposition of corresponds to structure of VaR limit hierarchy VaR comparisons against next day’s
historical state changes from stressed period into general and specific components BUT use changes in static portfolio P&L (SPL results reviewed periodically against actual P&L)
static set of regression indices (instead of dynamically assigning indices) to make general Exceptions at CIBC and business levels (Tier 1 + Tier 2) validated, explained,
market risk comparable from one day to next Use only 2 indices (1 country index + 1 documented, reported to senior management Backtesting results + exceptions available
country/ regional sector index) Debt Specific Risk (DSR) Use historically sampled to internal/ external auditors General Methodology SPL = P&L due change in market
spreads to compute spread volatility & default risk Use historical changes in spreads + parameters, with positions being held constant - Valuation methodology Value portfolio
credit spread sensitivities to construct P&L distributions during stressed periods Data using Day 1 market parameter Revalue same portfolio using Day 2 market parameters
(current) historical market spreads (total spread of basket of bonds) based on time series of SPL = change in portfolio value - SPL generation process Obtain greeks for Day 1
bond index spreads + information on total spread for each Credit Group; BUT no historical Obtain Day 1 + Day 2 market parameters Calculate change in market parameters
information on total spread at issuer level (historical data on total spread for basket of bonds, between Day 1 + Day 2 Compute SPL for Day 2 using change in market parameters and
but not for individual bonds) greeks For each individual desk, calculate SPL at greeks level by each appropriate risk
factor Market Risk Methodology calculate MR SPL by taking Day 1 trading positions, as
Requirements Stressed VaR
represented by the greeks, and actual market movements between Day 1 and Day 2. Basic
Calculate stressed PVs & greeks using full revaluation Shock tenors instantaneously or formula based on Taylor series: SPL = Σ over all instruments [δ* ΔS+ (1/2) Γ* (ΔS)2]+
over extended periods Shock spread curves instantaneously or over extended periods ν*Δσ+ Θ where SPL = 1-day change in portfolio value with positions held constant; ΔS = day

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over day change in price of underlying; δ(delta)/ Γ(gamma) 1st/ 2nd -order marginal OSFI Initiatives
sensitivities; ν (vega) = 1st order marginal sensitivity of instrument price to volatility (σ) of
price of underlying, Θ (theta) = 1-day change in portfolio, or measure of time decay, Business Case
assuming no change in market prices Equity Specific Risk back-tested against portion of Develop & implement new business/ risk framework including capital models required to
SPL related to equity specific moves (market and specific SPL split for given move in price meet new IRC and MRA guidelines by OSFI for December 2010 Develop Capital
of particular equity, table containing betas for such equity to relevant industry sectors and/or Contingency plan required by OSFI including capital impact assessment with
indices generated on a regular basis for DGVRT VaR) Debt Specific Risk indirect consideration to use of multipliers or standardized approach in the worst case scenario that
approach. Formula: DSR_PL(t+1,t) = Total PL(t+1,t) - GGM_PL(t+1,t) for each position OSFI does not approve CIBC’s IRC and MRA enhancements.
where Total PL(t+1,t) = total P&L changed = change in mark-to-market price between day Project Steering Committee Liam Mason, Matt Willis, Melody Glover, Greg Frank
t+1 and day t, GGM_PL(t+1,t) = gross general market (GGM) P&L, which includes P&L Advisory Pankaj Agarwal (Finance-Reporting Division) Robert Kowara (Internal Audit) Spiro
impact of changes in all underlying market factors. Hence DSR P&L = DSR_PL(t+1,t) Daoussis (Risk Management - Credit Risk Analytics) Laurie Russell (Risk Management —
consists of P&L components not explained by GGM P&L Net Trading Related Revenue RSI Project)
(NTRR) excludes “Other” trading revenue (Total trading revenue = NTRR + Other trading Overall Project Director (PMO) Lily Leung
revenue), NTRR = trade date based-MTM revenue from trading businesses driven by market Work stream Business Lead IRC Tim Xiao MRA/Stressed VaR Rina Shklyarman
movements; components of total trading revenue not included in NTRR: Sales and MRA/Enhanced VaR Measures Matt Willis Securitized Products, Illiquid portfolio Tim
commission income, Changes to reserves, Changes to valuation adjustments, New business Mills Contingency Plan Michael S Lau OSFI Governance Melody Glover
revenue including inception revenue and fees Plan
EOD Feed schedule

Enhanced VaR Tactical

•VaR Calculation tools for new sensitivities (IR Basis, Equity+ Commodity Skew Vega,
Dividend, Correlation Sensitivities) •Reporting •Operational Procedures

IMA (Internal Model Approach) Documents to be submitted

Market risk policies (describe framework) Organization structure (independence/
segregation of duties) Measurement systems (describe methodologies & models)
Stress testing program (selection methodology for scenarios) Back-testing program
(previous year’s results, exceptions) Technological environment (diagrams, processes)
Limits structure (hierarchical structure, approvals) Management information systems
(regular & ad-hoc reports) Databases of relevant information (time series of risk factors,
P&L) Reports of independent assessments (internal/ external audit) Estimation
regulatory capital (SMM + IMA) Description exposures (by product & risk factor)

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 exposure measurement for Repo-Style transactions Direct Credit Exposure
measurement Credit derivative reference assets Negotiable paper Certificate of
deposits Fixed deposits FX Settlement Risk Exposure measurement (FX and XCCY
Swaps) Credit Stress Testing & Sensitivity Analysis Credit Exposure Limits Management
& Limit Excess Workflow Management & Limit Excess Reporting Pre-deal /trade credit limit
check & what-if analysis Counterparty Maintenance Netting & Collateral Agreements
Document Management & Tracking Regulatory, Management / Credit Economic Capital
Measurement & comprehensive Reporting Wrong Way Exposure & risk measurement
Portfolio Analysis in production Security Administration & Audit functionality
Ageing/Stale calculations for Wholesale Banking products & all market and reference
data for OTC derivatives & Repo-style transactions for contingent credit exposure
measurement Fixed Deposits Negotiable Paper e.g. Credit Derivative reference assets +
loans Collateral pledged/received + pledges to exchanges
Credit Risk Use Case
Simplified credit, market and liquidity risks High level (p. 3) Market data analysis
(Market Data Manager) (p. 7) Determine/ calibrate simulation parameters (p. 9) Market
data/ risk factor simulation (p. 13) Bootstrap & calibrate market data (p. 15)
Transaction valuation and aging (batch or real-time) – credit risk (p. 17)
Transactions/positions data transformation (p. 19) CCISization (p. 21) Adjustment
overrides/ deal structures (p. 23) Netting treatment (p. 25) Collateral treatment (incl.
closeout) (p. 27) Client (party) reference information (p. 29) Adjudication and
documentation (p. 31) Reference data CIBC hierarchies (p. 33) Calculate accounting
measures (p. 35) Aggregation and derived risk measures (p. 37) Reporting and
OLAP (p. 39) Limit excess workflow (p. 41) Report limit breaches (p. 43) Pledging/
projection forecasts (collateral) (p. 45) Sensitivity analysis and stress testing (p. 47)
Month-end (p. 49) What-If/ Pre-deal check real-time (p. 51) Credit Value Adjustment
CVA (p. 53) Power analyst & parameter testing (p. 57) Economic and regulatory
capital calculation (p. 59)
Credit Risk Exposure
SUNGARD ADAPTIV For each scenario date, using decomposition
Register price factors required by valuation matrix, arrive at projected vector of normalized
models (FX rate, Interest rate, FX volatility surface) correlated random numbers  Risk Factor
Price factor models register risk factors used to Values – Scenario Grid dates
evolve price factors. Construct correlation matrix of For each factor type, generate path value
risk factors and calculate decomposition (Cholesky based on the underlying risk factor process of the
or Eigenvalue)  Correlations factor model (Log diff, O U, Poisson) Risk
Generate grid of of dates based on the Base time Factor Paths – Scenario Grid dates
grid that has been defined in the calculation Path values for scenarios’ risk factor types
definition. With Dynamic Dates on, all other ready? pricing function triggered at base grid
significant dates that are required as per deal dates and dynamic dates (PV’s). Calculation of
properties are also included price factor values at base grid dates (& dynamic
Generate grid of dates based on Scenario Time dates) happen as per factor model. Path values
grid (defined in calculation definition) will form an input in this calculation. If the time
REPEAT  through  points of base grid date do not coincide with the
For each scenario, for each given point on the time points of the scenario grid, interpolated path
scenario grid dates and for each registered factor, values are taken
generate uniformly distributed random numbers  Price Factors – Base Grid dates and
through the Box‐Muller transformation (using
dynamic dates
methods available from .net library random class)
 Random Numbers  PV’s – Base Grid dates and dynamic dates
Credit Risk Terminology
Work streams
BLACK-SCHOLES Collateral Credit VaR (CVaR) Credit Risk Adjudication Credit
Work stream Mandates Valuation Adjustment (CVA) Duration DV01 Economic capital Interest Rate Risk
IRC Develops/ implements new IRC model & other related initiatives Monte Carlo Potential Future Exposure PFE
BCBS guidance for “Guidelines for computing capital for Credit Valuation Adjustment (CVA)
incremental risk in trading book”, (IRC) Jul 09
Factors influencing CVA
MRA Develops/ implements Stressed VaR, Enhanced VaR,
exponential weighting, volatility scaling factor - BCBS guidance Definition CVA = Expected (average)
“Revisions to Basel II market risk framework”, (MRA) Jul 09 credit loss from c/p transactions =
Securitized Develops new business/operational framework within Capital Expected exposure (mean of
Products, Illiquid Markets, Securitization Work Stream, Chief Accountants to distribution of evolution of mark to
Portfolio support new capital treatment for securitized product & treatment markets)  Counterparty default
for illiquid positions (BCBS-MRA guidelines Section VIII) probability  “loss given default”
Contingency Develops impact analysis from above initiatives to Senior Accounting adjustment  fair
Planning Management of the Bank and OSFI. Contingency plan should value, marked to market, accounting for
consider standardized and multiplier approach in worst case potential counterparty default Credit
scenario of non approval for IRC and MRA applications and pricing  credit risk fairly priced/
capital plan work with Capital Management Team that links the compensated  measured with Risk
contingency plan to the overall capital plan of Bank Adjusted Return on Capital (RAROC):
OSFI Governance Develops/ implements new OSFI compliant framework across originators meet RAROC hurdle then
project and work streams e.g MIOC approach; completed and remain “owners” of credit risk
resolved self assessment gap analysis. Works with PMO through
 Evolution of credit pricing: internal transfer pricing to transfer credit risk into a central
preparation of all key deliverables into OSFI
function and the originating desks pay “insurance” to divest themselves of this risk 
Credit Risk complex measurement methodologies, infrastructure, politics  CVA function with own P&L,
collects premiums from originating desks in return for indemnification  front office focus on
Requirements risks affecting P&L Hedging P&L volatility  active CVA management into trading
Methodology framework & Regulatory calculation based on Basel II AIRB factor positions  CVA charge for volatile market spreads (Citigroup’s 2009 Q4 included $1.9
based/credit exposure measurement (for parallel run) Monte Carlo Simulation using billion correction to CVA versus earnings of $3.5 billion) Active counterparty risk
Internal Models for regulatory approval Counterparty Credit Risk Exposure + CVA management  hedge counterparty risk to reduce P&L volatility and permit business with
measurement for OTC derivatives & Repo-style transactions Contingent & Credit

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specific names Management of regulatory capital  reduce regulatory capital if c/p CIBC Risk systems
exposure hedged (Basel IIII double default formula)
Voyager (Market Risk)
CVA modeling issues
Expected Positive Exposure (EPE) vs Potential Future Exposure (PFE), used for limit
control purposes and measured to higher confidence level (95%, 97.5% or 99%); CVA for
accounting adjustment  “mark to market plus add-on”; CVA actively traded  Monte Carlo
methodology; Use real world (historical) simulation for PFE but risk neutral (market implied)
for CVA  different models between PFE and CVA or calibrated differently
Default scenarios (simple) multiply EPE by static Probability of Default (PD )
and Loss Given Default (LGD ) (complex) correlate PD with market risk factors for simulation
CVA sensitivities IR , FX, Credit deltas, gammas and cross-gammas (2nd derivative; for
option on S_1 and S_2, cross gamma) Wrong way risk (risk for transaction exposure and
counterparty default be positively correlated); counterparty risk increases if positive
correlation (at time of default, MTM of counterparty’s portfolio >> average value); wrong way
risk difficult to model because requires correlations between default probability and
transaction MTM Unilateral or bilateral basis unilateral CVA accounts for bank’s exposure
to its counterparties; bilateral calculation includes counterparty’s exposure on the bank
CVA Data requirements 35 Source Systems/ 300+ source files feed Store mapped position & GREEK data
Market data •Name-specific credit spread curves – Spot Spread and 90-Day Average Store historical data <=13 months Interface with Enterprises Manual Adjustment for
Spread •Average credit spread curves by rating – Spot Spread and 90-Day Average Spread positional and GREEK data adjustment Provide input for Euclid engines to calculate delta
Reference Data •LGD by facility External (S&P) • Rating mapped to internal rating (with & gamma Provide input for DSR engine, SPL back testing & final storage Perform zero
mapping rules) Input Data Processing •Credit spread curves from market data +LGD  GREEK transformation 2-way interface with TRMT Internal “TRACS” system
bootstrap PD (probability of default) using risk-neutral measures to calculate CVA. Use Consolidated maestro schedule batch job stream with Voyager DW Historical Simulation
average spread curve if name-specific curve is missing for 1 counterparty Overrides •PD Process Products & Risk Measures
overrides •LGD overrides •Name-specific credit spread curves overrides, e.g., +50bps for all TRACS (Credit Risk)
or selected tenors •Average spread curves overrides, e.g., +50bps for all or selected tenors Multi-dimensional analytics system with capability to analyze syndication strategy by
•Rating mapping overrides, e.g., re-map one name specific spread curve (Rogers A) to evaluating complex structured transactions, counterparty risk, industry group and client
another average spread curve (Averaging BBB) structure, limits and exposure TRACS Feed System .NET Windows service responsible
CVA Calculation Process for processing (80+) incoming feeds & ensuring correct mapping into main TRACS database
Auxiliary Deal Module (ADM) deal entry & manual adjustment tool (Transaction Override
CVA dependent process Module, Deal Level MTM and Security Price Override Module, Deal Structures Module,
Pre-deal Check What-if Analysis Intra-day Incremental (real time feeds) EOD Batch Manual Deal Entry Module) Availability Inquiry Module (AIM) to evaluate whether to
process Month-end process Stress Testing process (Daily, Weekly, Monthly) approve or deny potential deals (Deal approval / denial based on current risk exposure
levels, daily settlement limits, counterparty term limits Availability Profile reports for
counterparties & deal types Daily Settlement Limit exposure profile reports
Counterparty Exposure Summary reports Counterparty Deal Detail reports
Exposure Graphing for counterparty) Credit Report Automation (CRA) Credit
Stress Engine (CSE) Calculate stressed LE & MTM of OTC Derivatives, Repo-style, and
Credit Derivatives profiles based on PD, LGD, perturbed parameters Credit Simulation
Module (CSM) measures sensitivity of counterparty derivative portfolios to small market
movements & large market shocks Exposure Simulation Module (ESM) determines
potential worst-case loss on counterparty’s portfolio ESM Batch application runs market
simulations daily ‘What if’ scenarios executed anytime Calculated values •Average MTM
•Loan Equivalent (or Average Positive MTM) •Credit Equivalent (or 97.5% MTM) GL
Reconciliation Analytical Tool delta analysis of risk measures across time series &
aggregations through drill down of input parameters and deal data KMV computes credit
risk of economic capital for large corporate loans & expected loan losses (using Moody’s
KMV EDF credit measure & Global Correlation Model) Master Customer Module (MCM)
.NET application to modify counterparty characteristics (e.g., exposure limits, contact
information) Monthly Parameters Update to update historical data at month start MTM
Difference interface to examine differences in mark-to-market
Systems and Components
System Component Description

Voyager Limit Management and Set limits for risk measures (risk and sensitivities) stored in
(24) Maintenance Voyager - on every business entity/risk measure combination and
 stores limit changes history

 HMT - Hierarchy Create and change hierarchies of business entities and stores
Maintenance hierarchy change history
 Manual adjustments to Create adjustments for position attributes and sensitivities and
inputs store adjustment history
Bi-lateral CVA and Net CVA-dependent process  Sensitivities (Greeks) Calculate greeks from position data and market data (supplied by
•Intra-day Incremental for real time feeds •End-of-Day Batch process •Month-end process Calculation (Euclid) GA2)
•Stress Testing process (Daily/Weekly/Monthly)  HistSim Calculate HistSim and DGVT VaR from sensitivities (greeks)
Negative/positive CVA inputs for all hierarchies and business entities. The calculation is
for different types of risk, generally delta, gamma, vega and
•If Bank A faces more credit risk than Counterparty B, CVA is negative (i.e. it reduces the overall risk for Equities, Commodities, IR, FX instruments.
value of the OTC derivatives from the perspective of Bank A) •If Bank A faces less credit risk
than Counterparty B, CVA is positive (i.e. it increases the value of the derivatives from the DGVT VaR
Market VaR
perspective of A) •If present values of the credit risks are same, CVA = zero
 Static PL - Market SPL Calculation of total and decomposed market PL (greek based)
CVA versus IRC calculation back testing
•CVA is for OTC credit risk measurement •IRC for capital charge calculation •CVA accounts  Odyssey - Market Calculation of greek based stress PL
for change in net exposure of A to B = EASA-EBSB, where EA=net exposure of B to A, SA=mean Stress PL Calculation
loss rate of A (EL*PD)= credit risk of A or B potential loss if A defaults. CVA>0, A may risk  Odyssey Web - Market Create and maintain (update, delete) market stress scenarios by
losing •IRC incremental capital charge because VaR does not account for credit events Stress Scenario defining shocks to risk factors.
(default and migration) maintenance

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  Stress VaR for Debt Calculation of DS VaR with stressed input parameters CIBC 5 Asset Classes by 29 Systems
Specific Risk
5 asset classes = Commodity, Credit Spread, Equity, Foreign Exchange, Interest Rate
 VaRTool - Desktop Calculation of DGVT and HistSim VaR for real or simulated (user System Asset Instrument
calculation defined) portfolios Class
Functionality to use positional inputs and market inputs from
different days WSS Foreign FX Contract
Uses Voyager to get the greek inputs Exchange
Interest Rate Money Market
 VaRTool - Desktop Calculation of DSR for real or simulated (user defined) portfolios
DSVaR tool XTRADER Commodity Commodity Option
Use positional inputs and market parameters from different days Equity American Equity Option, Equities, Equity Swap, European Equity Option,
 RAROC calculator Economic capital calculation in Voyager. Used from Chief Exotic, Listed Equity Future
Accountant's Division American Equity Option, European Equity Option, Exotic
Storage of RAROC historically Equities, Equity Basket, Equity Forward, Equity Option, Equity Swap, Fixed
 Regulatory Capital Calculation of regulatory capital associated with General Market Income Buyback, Foreign Exchange Future, Listed Equity Future
calculator and Issuer-Specific Risk Equity Cliquet Option - Equity Option - Exotic
Foreign Commodity Future, Commodity Option, Equities, Equity Basket, Equity
 BCAR (Basel Capital Risk Weighted Asset Data for monthly CAD reporting
Exchange
Adequacy Return) Forward, Equity Option, Equity Swap, Fixed Income Buyback, Foreign
Exchange Forward, Foreign Exchange Future, Foreign Exchange Option,
 Stats Engine calculated statistic parameters for the different market risk
FX Barrier Option, FX Digital Option, Interest Rate
factors by processing their return time series
Commodity Option, Equity Basket, Equity Option, Fixed Income Buyback,
 Enterprise DB Staging Data Store with Raw data and results. Foreign Exchange Option, FX Barrier Option, FX Digital Option, Interest
and Enterprise DB Rate Option, Interest Rate Swap, Listed Equity Future
 MTS Gateway Delivery mechanism to deliver data from multiple data sources Foreign Exchange Option
across different system environment. Interest Rate Commodity Future, Commodity Option, Equities, Equity Basket, Equity
Forward, Equity Option, Equity Swap, Fixed Income Buyback, Foreign
 OMR Adjustment Tool End user adjustment tool to adjust OMR Securities Month End
positions for RWA – OMR (Interest Rate - Asset Backed Security, Exchange Forward, Foreign Exchange Option, FX Barrier Option, FX
Collateralized Mortgage Obligations, Mortgage Backed Security, Digital Option, Interest Rate Future - Generic, Interest
Interest Rate Swap, Loan & Deposits) Fixed Income Buyback, Interest Rate Option, Interest Rate Swap, Single
Currency Swaption
 Enterprise Easy Web end user interfaces to perform ad-hoc updates
Interest Rate Option
Update Tool
Commodities Agriculture - Base Metal - Crude oil - Commodity Index – FX - Interest Rate
 Voyager Easy Update Web end user interfaces to perform ad-hoc updates
– Livestock - Natural Gas - Precious Metals - Soft Commodities
Tool
OPTEX Credit Spread Debenture
 Gemini Aggregate actual P&L data from DFE. Provides adjustment Interest Rate Annuity, Asset Backed Security, Bankers Acceptance, Bond, Bond Future,
capabilities and calculates various statistical measures which are
Bond Repo/Reverse Repo, Caps, Deposit, Euro Bond Repo, Floating Rate
then loaded into Voyager
Notes, Foreign Exchange Forward, Foreign Exchange Swap, Forward Rate
 MBVaR Merchant Banking VaR Agreements, Futures, Interest Rate, Interest Rate Swap
Option on Interest Rate Swap, Single Currency Swaption
 LTVaR Long Term VaR
DSTS Interest Rate Asset Backed Security, Bankers Acceptance, Bond, Bond Residual,
 Re-Insurance Atlas Coupon, Discount Note, Floating Rate Notes, GICs, Mortgage Backed
TRACS MTM and Other AIM, MCM, ADM, ESM Console, PEF, FX Web link/dealing, CSE Security, Notes, Treasury Bill
(13) TRACS User Interfaces Web App, CSM Web App, MTM Differences, Table Maintenance ADP Equity Equities
 Tool (TMT) Interest Rate Equities
 TRACS reporting Reporting environment - databases (daily, weekly, monthly), ACBS Interest Rate Loan
OLAP cubes and web plus all OLAP cubes (including TAT), web OPICS Interest Rate Bond, Certificate of Deposit, Commercial Paper, Foreign Exchange
applications and automations (Credit Report Automation CRA) Barbados Forward, Loan & Deposits, Treasury Bill
– includes report usage logs Foreign Bond, Certificate of Deposit, Commercial Paper, Foreign Exchange
 PARAM Process Monthly parameter calibration databases and all monthly Exchange Forward, Loan & Deposits, Treasury Bill
parameter calibration processes ROLFE & Interest Rate Bond Future, Interest Rate Future
 Exposure Simulation Module ESM Engine + ESM Batch Processes NOLAN
DVP Interest Rate GICs, Loan & Deposits, Loan, Mortgage Backed Security, VarMtg
 Credit Stress Engine CSE and all CSE Batch Processes
LOANET Interest Rate Loan Borrow/Lend
 Credit Simulation Module CSM Engine, CSM Databases and all CSM Batch Processes OMR Interest Rate Asset Backed Security, Collateralized Mortgage Obligations, Mortgage

 Month End Processing Month End databases and all month end batch processes for Backed Security, Interest Rate Swap, Loan & Deposits
and Databases month end regulatory - reporting and economic capital reporting GLOBAL Interest Rate Loan Borrow/Lend
including CVA calculations - ONE
OPICs Repo Interest Rate Bond Repo/Reverse Repo
 PEF - Monthly PEF databases and all monthly PEF processes
MBS Credit Spread Bond, Commercial Paper Interest Bearing, GICs, Mortgage Backed
 Table Maintenance Tool TMT - Functionality/tables that must be maintained Security
 MCM Document Scanning and Retrieval Bloomberg Interest Rate Bankers Acceptance, Bond Residual, Floating Rate Notes, Notes, Treasury
Bill, Bond Repo/Reverse Repo, Cash, Loan
 TOES functionality
MIDAS Interest Rate Bond, Loan & Deposits, Treasury Bill
 Collateral and Pledging Functionality CMI Interest Rate Fixed Rate Mortgage
Calypso Interest Rate Credit Swap
 Regulatory Capital Calculation for all trade types
Quantifi Interest Rate Synthetic CDO
DVP DVP Impact Interest Rate Bond – Note – T-Bill Repo/Reverse Repo
LRS LRS COBSCO Interest Rate Loan & Deposits
MHS Market History Store For input to Value at Risk (VaR) engines, receives @ close of Casea Equity CFD, Equities, Foreign Exchange, Futures, Listed Equity Option, Mutual
Proprietary data business, market, related data via shared File Central; capture Funds, Preferred Shares, Restricted Stock - RSTK, Equities
warehouse, previously directly from internal databases + external data vendor FTP sites. Credit Spread
MANADJ Bond, Notes
vendor-based and is Feed schedules managed via SQL Agent. "Value-added"
now developed and process data quality assessment, data correction, calculation of
owned in-house by derived values MHS supplies accurate, current data to a variety of
FUSION Credit Spread Treasury Bill
Corporate, Treasury, clients, including internal clients, bank computer systems, and
& Risk Management business units. Trading Room Risk Measurement, Monitoring Foreign Foreign Exchange, Foreign Exchange, Foreign Exchange Forward
Exchange
Technology (CTRM and Control (TRMC) - primary users and reviewers of data and
Interest Rate Foreign Exchange Forward, Foreign Exchange Swap, Loan & Deposits,
Technology) access MHS via a customized Excel interface. Spreadsheets
programmed in Visual Basic and use ODBC to read and write to Treasury Bill
GRD Credit Spread Bond, Credit Swap, Floating Rate Notes, Money Market, Preferred Shares
the MHS databases. Business Solution Monitoring Control
(BSMC) secondary users access copy of data, downloaded Equity CFD, Equities, Foreign Exchange, Futures, Listed Equity Option, Mutual
nightly from the MHS database. BSMC (Ranger) users access Funds, Preferred Shares, Restricted Stock - RSTK, Equities
MHS via an Excel plug-in. Interest Rate CFD, Equities, Foreign Exchange, Futures, Listed Equity Option, Mutual
CIBC CIBC MELLON Funds, Preferred Shares, Restricted Stock - RSTK, Preferred Shares
Mellon

Page 8 of 26
 GRID Foreign Foreign Exchange Option Adaptiv Functional Description Risk Type
Exchange Component
Interest Rate Unmapped Instrument
Credit Spread StressScape Database of exposures from automated Credit Risk stress runs: Credit
IBTSS Loan & Deposits
- Max deal measure values per stress test ID
Interest Rate Loan & Deposits - 15-point portfolio profiles per stress test ID (NOTE: Full granularity of
MUREX Credit Spread Bond, Bond Future, Call account, Certificate of Deposit, Floating Rate profile is available in binary format for interrogation where required. This
Notes, Interest Rate Future, Loan & Deposits, Treasury Bill will be built into specified reports (see for example Credit As-Of in Ref
Interest Rate Bond, Bond Future, Call account, Certificate of Deposit, Floating Rate #3) , and can be inspected ad-hoc via a SunGard tool
Notes, Interest Rate Future, Loan & Deposits, Treasury Bill MDS This handles all interactions between MDS and CIBC upstream and Market
Interface downstream systems. Functions are: Credit
Bond, Bond Future, Certificate of Deposit, Floating Rate Notes, Loan & Layer - Validation of files received
Deposits, Treasury Bill - Conversion of files to “delta” operations
Bond, Call account, Certificate of Deposit, Floating Rate Notes, Loan & - Collection and processing of exceptions
Deposits, Treasury Bill Adaptiv Monte-Carlo (MC) valuation of applicable trades for market and credit Market
FTS Foreign Foreign Exchange, Foreign Exchange, Foreign Exchange Forward Analytics risk based on data with each request. There will be two model sets: Credit
Exchange (AA) - SunGard AA models value trades in FO systems other than X-Trader
Interest Rate Foreign Exchange - RAF models (built by CIBC) value trades booked in X-Trader
AA performs for Credit Risk aggregations of applicable trades to be
SUNGARD passed back to ARH for further aggregation with Factor-based trades.
Incremental Monte-Carlo (IMC) used for real-time exposures MR + CR
SUNGARD services Analytics for market risk produces scenario results for:
- VaR
Late feeds Interrupted file transfer Data integrity (uploaded data) Outage caused - P&L stress tests
by change/ network - Scenario PV values for Historical Simulation by factor group
- Scenario PV values for MC market VaR by factor group
SUNGARD Contract terminology - No-action P&L
“Active Deal” = Single trade record in the Adaptiv Credit Risk database where such record - IRC
- (DSR) IR and EQ specific risk scenario PV values
is subject to evaluation or aggregation processing for the purpose of credit exposure Trade associations to Risk Factors Analytics Workspace providing
calculations as specified in the FRS. Such exposure calculations include but are not limited users with ability to what-if or replay analyses.
to: potential future exposure (PFE), settlement risk and issuer risk “Adaptiv Credit Risk” or Market Data This is the central repository for all market data, including data for pricing Market
Manager parameters, current market rates, and historical time series. Functions are: Credit
“ACR” = Standard Software module (including any updates thereto) of the ASP Services (MDM) - Volatility correlation statistic sets and MC drivers
providing global credit exposure data aggregation and management, credit limit management - Current rates and pricing parameters
and related functions “AdaptivTrack” = SunGard Incident Management System “Band” = - Calibration of the data based on the models
MDM will be fed data from upstream; read-only access for users.
tier of Transaction volumes and associated Transaction Fees as set out in Section 3.5 to Part
Valuation This component stores the history of AA formatted trade data, Market
F of this Schedule 2 “Billable Dealing Transaction” = deal entry, deal modify or deal reversal Input Store market/historical data, and calculation parameters passed to AA that were
activity recorded in ACR where such activity triggers a portfolio exposure update as part of (VIS) used to calculate the scenario PVs. It acts as the principal source for audit,
the Transaction. For the avoidance of doubt, pre-deal checks, mark-to-market updates or any corrections and reproducibility of scenario PVs collected by the RiskCube.
The VIS provides the ability to retrieve the trade/market data for any as-of
other end user activity are generally not considered Billable Dealing Transactions date, and supports corrections to this data. The VIS supports workflow
“Downtime” = time period in which the ASP Services were unavailable to process events that control the process for EoD, trade corrections, market data
Transactions, as further defined in Section 5 of Part B of this Schedule 2 “End of Day” or corrections, and late feed processing.
Adaptiv This component allows the viewing, calculation and storage of market risk Market
“End Of Period” = overnight batch process sequence as further described in the documents Risk Cube results dynamically aggregated to users’ requested dimension and
referenced in Section 2.1 of Part A of this Schedule 2; “Initial Term” = time period (ARC) drilldown to the trade level. ARC receives scenario PV data from AA
commencing on the Schedule 2 Effective Date and ending on the earlier of: (a) the fifth calculations, and provides drill down slice & dice analysis functionality
based on a set of attributes tagged against each trade. These trade tags
anniversary date from the date of Adaptiv Credit Risk First Productive Use, plus the number define the dimensions of the drill down filters.
of days between the date of Adaptiv Credit Risk First Productive Use and December 31st in SWORD Monitoring of: Operational
the calendar year into which the date of Adaptiv Credit Risk First Productive Use falls; (b) the - KRIs Risk
- Adaptiv workflows
date this Schedule 2 is terminated by either
Party in accordance with the terms of this Schedule 2 and the Agreement Renewal Term” = MUREX
each successive three (3) year period after the Initial Term for which this Schedule is renewed Murex FX Deals
in accordance with clause 2.2 of the Agreement “Risk Carrier” = special type of Active Deal Spot Trade settlement/delivery takes place within 1 to 2 business days Outright/Forward
that stores the exposure profile for a portfolio, representing a system generated container settlement/delivery takes place on any date other than spot Swap (+Overnight) consisting
within Adaptiv Credit Risk for an externally generated exposure profile “Risk Carrier of two parts (Near Leg + Far Leg) Take Ups (Time Options) Forward valued trade where
Transaction” = special type of dealing Transaction impacting a Risk Carrier deal in the ACR the counterparty has the right to trigger delivery of funds between specified date & value date
database that stores the exposure profiles for a portfolio of other deal contracts, such OIS Overnight Index Swap overnight rate exchanged for some fixed interest rate IRS
Transactions being of the add, modify or reverse types “Standard Software” = any Release Interest Rate Swap one party exchanging a stream of interest for another’s party’s stream
of: Adaptiv Credit Risk Server; including inter alia Web UI (the “Portal”); Core processing DEPO Deposit counterparty agrees to take on funds at a specified rate LOAN counterparty
server; Real-time interface handler; and Batch interface handler “UK Business Hours” = aggress to sell funds at a specified rate Futures Trade allows trader to buy or sell specified
time period between 09:00 a.m. and 17:00 p.m. (UK local time) on any day from Monday to amount of given currency at specified price on specific date in future
Friday, excluding official UK bank holidays.
SUNGARD Modules
Adaptiv Functional Description Risk Type
Component

Master Data Central repository for all trades, issue and static data. The trades types Market
Store (MDS) represented in the MDS correspond with products in the various client Front Credit
Office systems. Each modification to the data set is validated and audited.
Risk Hub This is the main application component, hosting the portfolio membership Market
rules, aggregation logic and mapping of the MDS trade format to AA trade Credit
format. The following functions are available:
Data Admin Tool:
• Input and maintenance of static data
• Customer mapping
• Input of deal corrections and exposure overrides
• Viewing and acting on exceptions and warnings
Limits and Workflow:
• Setting of term-based exposure limits
• Setting of maturity checks
• Setting of authorised products
• Processing of Excesses and Violations
Exposure Monitoring:
• Viewing of exposures by portfolio
• Pre-deal checks
• What-If analysis
Canned Reports:
• Paper-based reporting
RiskScape Historical exposure database: Credit
- Max deal measure values per business day
- 15-point portfolio profiles per business day (Note: Full granularity of
profile is available in binary format for interrogation where required. This
will be built into specified reports (see for example Credit As-Of in Ref
#3), and can be inspected ad-hoc via a SunGard tool

Page 9 of 26
 Risk IT Architecture

Federated Architecture (FA) = pattern in enterprise architecture that allows

interoperability and information sharing between semi-autonomous de-centrally organized
lines of business (LOBs), information technology systems and applications
On Risk Data architecture

FX portfolios
All Spot portfolios will be owned and maintained within their own region. As well, all non-CAD
forwards trades will be maintained in their respective portfolios. All CAD forwards will be
routed to the Toronto Forward book ‘Darrin Brooker’ from all regions. The FX system will
strip out all forward CAD positions of booked trades to portfolio ‘Darrin Brooker’, regardless
of the geographical origin of that trade. Any non-CAD forward positions will remain in the
respective trading center. All portfolios will have the capability to input trades in all MurexFX
supported products and view their risk on a portfolio basis.
MUREX trade flow

Data Processing applications extract-and-process Analytic Repository simple

reporting to complex ad-hoc queries, usually a confusing mish-mash of different systems 
Data Cleansing and Transformation from flat files, real-time data from data bus, data
quality issues, snapshot data vs. changes - large volumes with imperfections in data
Risk Data Management
On Financial Risk Data Requirements
Detail rather than aggregate data but detailed transactional and position data for on-
request/ situational ad-hoc aggregates Complete 100% coverage of all positions of the
firm instead of only notional size of a position Timely analysis to keep up with rapidly
moving markets Integrity correct data
Risk Data Management Best Practices
Bank in essence = IT Company Software manufacturing Data production &
consumption Information supply chain How to manage business view of data?
Trading system interfaces Language interface business to IT Conceptual model
Electronic Broking Systems EBS's closest competitor is Reuters Dealing 3000 Spot
Matching. The decision by an FX trader whether to use EBS or Thomson Reuters Matching
is driven largely by currency pair. In practice, EBS is the primary trading venue for EUR/USD,
USD/JPY, EUR/JPY, USD/CHF and EUR/CHF, and Thomson Reuters Matching is the
primary trading venue for commonwealth (AUD/USD, NZD/USD, USD/CAD) and emerging
market currency pairs.
P&L Calculation
Deal’s 4 components Exchange Rate Base Rate Spread & Discounts Amounts
Consider EUR/JPY trade for $1M buying EUR, exchange= 161.5257 ( -0.015 discount), base
rate= 1.358677 EUR/USD (0.000056 discount), spread of 0.002 (on the EUR rate) JPY
amounts = $1M * 161.527 (Exch. Rate) = 161,527,000.00; USD/JPY forward rate =
118.8855504 (Exch. Rate / Base Rate) + spot rate = 118.87050406 (Exch. Rate + Exch.
Discount); EUR/USD forward rate = 1.360677 (Base Rate + Spread) + spot rate = 1.360621
(Base Rate + Spread – Base Discount)  spread P&L generated on this trade 2000 EUR
(EUR/USD Forward Rate * 1M – (Base Rate * 1M))  1472.02 USD IN P&L

Page 10 of 26
 Financial Risk Topics
Stress testing framework

Risk appetite

Investment Platform

Data standards in process chain

Page 11 of 26
 Contingent liquidity pricing for a facility

Liquidity Risk

Contingent Cash Flow Funding Risk (CCFR) for derivatives

CCFR=method to determine the market value of cost of funding of assets and liabilities;
applies to all trades and positions including retail assets and liabilities Liquidity funding
risk (LFR) leverages Market and Credit Risk data feeds; retail feeds leverage off the current
Liquidity Risk System (LRS) feeds CCFR sources = GIC'S, VISA, bank account,
RRSP, wholesale automobile loans, mortgages, student loans, commercial loans
Non-trading risk
WESTPAC Definition
Non-traded market risk (interest rate risk in banking book)= risk to interest income
generated by a mismatch in the duration of the assets and liabilities (Treasury’s
responsibility) Equity underwriting & warehousing risk Equity underwriting=
Overview development of solutions for corporate and institutional customers with demand for equity
capital Equity warehousing= acquisition of assets in anticipation of refinance through
Contractual liquidity assessment of all material, known/ expected cash flows from existing
combination of senior, mezzanine and capital market debt and listed, unlisted and privately
contracts under normal/ stressed market conditions Contingent liquidity assessment of
placed equity; unlike underwriting risk, bank is principal owner from acquisition until sale
all expected cash flows taking into account customer behavior (prepayments, rollovers, draw
Managing equity underwriting & warehousing risk  evidence of expected equity investor/
down of credit lines, recoveries) under normal + stressed markets Market liquidity risk
debt financier interest Operational risk from inadequate or failed internal processes,
assessment of market liquidity + credit spreads under normal and stressed market
people and systems or from external events Liquidity risk potential inability to meet
Cash flow landscape
payment obligations (responsibility of Treasury, who monitors funding base & ensures that
base prudently maintained & adequately diversified Compliance risk Reputation risk
Non-Trading Book Exposures in Equities (Lloyds bank)
Wholesale - from transactions in private equity market as result of debt for equity swaps,
medium term investments held for gain with limited partnership stakes & listed/ unlisted equity
shares Available-for-Sale financial assets non-trading debt securities/ equity shares, at
fair value through profit/loss, held-to-maturity investments or loans & receivables; recognized
in B/S at fair value, inclusive of transaction costs; sold in response to needs for liquidity or
changes in interest rates, exchange rates or equity prices; gains/losses recognized in other
comprehensive income, until the financial asset is either sold, becomes impaired or matures
(cumulative gain/loss then recognized in income statement). Interest calculated using
effective interest method and FX gains & losses on debt securities denominated in foreign
currencies are recognized in income statement; can be transferred to loans and receivables
or held-to-maturity category Equity Investments (Including Venture Capital) unlisted
equities and fund investments
Basel III
Overview
Financial Institution in Canada

Fund transfer pricing with liquidity risk

Capital reform, Liquidity Standards, Systemic Risk

Page 12 of 26
Capital under BASEL III

3-Reduced leverage with backstop leverage ratio

4-Increased short-term liquidity coverage

Minimum Capital Standard

Regulatory Objectives 5-Increased stable long-term balance sheet funding

1-Increased quality of capital 6-Strengthen risk capture notably counterparty risk
2-Increased quantity of capital

Page 13 of 26
Timeline

Risk Type - Risk Management

Enterprise Risk
ERM framework
• Strategic Risk Management
enabled by strong governance,
identification, assessment,
management of risks
• Key tools include risk appetite, Risk Models
risk assessments, stress testing, A range of risk models is used, each fit for purpose, with reconciliations across platforms to
capital management ensure consistency. All models are subject to a single model governance framework
• Analysis uses multiple
approaches & lenses (accounting
and economic) to
assess risk and reward

Risk Appetite, Assessment, Measurement

RISK APPETITE RISK ASSESSMENT RISK MEASUREMENT
•Enterprise + business unit • Identify, manage top 10-15 • Economic Capital
risk tolerance, strategy, key risks faced by enterprise • RAROC
policy & financial goals • Quarterly review • Stress Testing
• Periodic review, actively • Self Assessments • Category specific - Loss
engage Board, C-Suite • NPI Process Forecasting, VaR etc.
• Aggregation • Drilldowns

Sample Process Workflow

Interest Rate Analysis Example
Framework/ Analysis Performed
Models
Product Risk Regular review of product spread compression to inform in-
Analysis force
management and new product pricing
Stress Testing Used a “zero rates” stress test on projection of future risk
based
capital (RBC) over a 30 year period to assess exposure to
extended low rates
Risk Appetite Quarterly analysis of high and low rate scenarios to assess
impact relative to risk limits – corrective actions taken in the
event early warning signals are breached
Economic Value Analyzed impact on economic surplus of a 475 basis point rate
Model shock up and down

Page 14 of 26
 Operational Risk
Identifying Top Risks
4 types of losses

BIS Definition

Financial Regulation

Risk Identification, Type, Cause

Operational Risk
COSO

Page 15 of 26
Event, Category, Activity 1 Input to Risk Catalogue

2 Risk Assessment Scorecard

3 Review and Validation

Output of assessment process

Assessment Approach

Page 16 of 26
OR Tools unexpectedly high profits or losses Policy Exceptions Index number & significance of
policy exceptions Regulatory Index number & severity of comments made and fines
levied by bank and regulators Staff Turnover Index turnover rates in critical functions
Objectives, Strategies, Risks, KRI’s

OR Management System

KRIs to Inform About Risk of Debt Covenant Default

Operational Risk Management System

OR in the context of risk

Key Risk Indicator (KRI)

Key risk indicators (KRIs) = measures to signal rising OR or to assess OR exposure
12 KRI
Audit Issue Management Index number + severity audit issues not yet resolved
Business Continuity Index vulnerability & criticality of processes, quality of continuity
plans, frequency & adequacy of practices / tests Failed Customer Interactions Index
number, duration & severity of failures to provide customers with prompt, reliable, effective
service Information Security Index number & severity of virus attacks, critical
vulnerabilities left unresolved for significant period, security events with client impact
Information Technology Index availability of technology at critical periods for critical
purposes New Product Index rate of introduction of significant, new products with major
implications for people, processes or systems Operational Losses dollar amount of
losses Process Breaks Index rate, severity and size of trading, clearing and settlement
failures and customer impact Profitability Index number, suddenness and severity of
Page 17 of 26
KRI for Operational Risk trade execution for swaps used for hedging; but proposed margin rules require margin
arrangement (although no specified margin amount reporting required) Central Banks
excluded from clearing and from SD and MSP registration

HOOP considerations
Trade Execution eligible swaps traded on electronic platform e.g. SEF Swaps Exchange
Facility Derivatives Clearing Member DCM - one or many Affirmation/ Confirmation
OTC trades affirmed/confirmed on T+0 in order to be cleared (currently, trade date+10-plus
business days paper confirmations return from counterparties  must use electronic
platforms (e.g., DTCC and MARKITWIRE) for T+0 basis Margining must post Initial
Margin and daily variation margin Pricing in order to agree on margins, must receive
clearing houses prices  different from internally generated prices? process for obtaining/
verifying prices? Risk Management DCM/ Clearing House for counterparty risk
management Trade Repositories OTC swaps to be reported to trade repositories, similar
to credit default swap deals currently in Depository Trust & Clearing Corporation DTCC
Trade Information Warehouse TIW Legal Document Clearinghouse prices for
accounting purposes? Reconciliation between internally generated and clearing house price
sufficient How to account for variation margin? Integration and workflow Training and
documentation Controls
HOOPP Plan
Key deliverables Configure SCD to calculate/ post daily Variation Margin VM (using
FX rates and 'data consolidator' prices) Recon SCD VM to DCM VM Shadow replication
processing (for reporting) FX flattening per DCM SCD Accounting configurations for VM
SCD to NT Cash Recon, adjustments for VM Netting Revise collateral process to deliver
initial margin on T+1 Setup collateral pools and haircuts for each DCM Modify reports for
VM/DCM changes Recon's (IRS and CDS) HOOPP to MARKIT Position Recon Data
Enterprise Risk Management Schematic Integrity Reports (IRS/CDS) Trade flow data integrity Price feed data FX feed data
integrity IT infrastructure FTP, batch jobs and scheduling Operational procedure/
process change training/ documentation
System capabilities for OTC derivatives central trading and clearing
Support enterprise data management for a 360° view of risk/ performance Automate
position valuation & generation of variation margin Automatically reconcile discrepancies
against transacting counterparty Support full straight-through-processing (STP) workflow
for OTC swaps Provide transparency in trade transaction flow for full disclosure
Communicate real-time details of trades and collateral to all relevant parties Provide
broad instrument coverage that includes centrally & bilaterally cleared trades plus
instruments outside of Dodd-Frank Support real-time reporting to reflect the most up-to-
date view of positions and trades
Straight Through Processing STP

HOOPP
Middle office processes
Financial report Origination Maturities/ amend Reconciliation Settlement/custody
Valuation
Collateral Business
•$40B in assets •Security lending + REPO + OTC •Collateral book ~ $20B (pledged, etc)
•C/P derivatives 20 SECLEND 10 REPO 12
Straight-through Processing STP
SCD STP
Dodd-Frank
Swap Dealers (SDs)/ Major Swap Participants (MSPs) Dodd-Frank  full set of
regulatory requirements (capital, margin, business conduct, etc.) Financial Users of
Swaps subject to clearing, trade execution, reporting and, if the counterparty is an SD/MSP
margin, documentation and other requirements End-Users exempt from clearing and

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Market infrastructure On SCD EQUITY

HOOPP Process for transacting & clearing a trade

On Collateral

SIMCORP
HOOPP, More on HOOPP HOOPP Treasury Securities Lending & Collateral
Administration Workflow Equity, Derivatives, FX, Fixed Income SCD Equity
SCD Fixed Income SCD Upgrade Fair Value Continuity More on SCD
SCD Lexicon

On SCD Fixed Income

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Functions & Modules
SCD Solutions Portfolio

SCD Data warehouse

AIA/AIG
• Underwriting, claims and POS (Policies) • Products: Endowment (EA), modified anticipated
endowment special (MAES), Life endowment special (LES), Yearly Renewable Term
Assurance (YRTA) • Riders: Accidental death benefit (ADB), Accident medical
reimbursement (AMR), Accident Hospital income (HI) AIG Size •AIG: #1 market cap $200B
(2000), 91.3% life premium in Asia; AIA revenue $5B, PCI Bank, PhilAmlife, AIG
SunAmerica, AIG Private Bank
P&C
Develop automobile insurance 3rd-party liability Accident benefits Uninsured motorist
coverage General provisions, definitions, exclusions Statutory conditions,b prescribed
conditions (BC), mandatory conditions (Nova Scotia), policy conditions (Quebec) Loss of
or damage to insured car Endorsements Applications, underwriting
AIG Credit Card
AIG Credit Card Company Philippines owned by AIG Consumer Finance and sold to PhilAm
Savings bank •Rapid prototyping •Payment Card Industry Data Security Standard (PCI DSS)
•Marketing & acquisition practices, effective campaigns •Tech infrastructure supporting
credit & debit products, services, fraud detection, security, compliance, marketing,
distribution & sales

CIBC Control
CIBC 20 Services (Financial)
AUDIT Admin of Non-Core loans.
FINANCE Advertisement Costs
GLOBAP OPS AR, AP
ARCHITECTURE ETL MANAGER HR Business Analysis
· Single source of truth · Logic-based mapping LEGAL Call Centre Supports products for Commercial Banking
· Data harmonization · Management database for ETL logic MARKETING Compliance
· Sign-off functionality · Configurable validation logic RETAIL Fees (Directors, OSFI)
DATA MODEL · Logging of all ETL processes
RISK Financial Analysis
· Multi GAAP · ETL logic managed via portal
TECH SERV Financial Ombudsman
· Multi Entity · Automatic dispatch of status notifictions
· Decomposition WORLD MARKETS Financial Risk Support
· Data History WEALTH HR - Compensation
HR - Compliance
AIDC Financial Management and Treasury Management Costs
IT integrated with Financial Management (treasury, risk management and quantitative Project Management
applications) TREASURY AND COMMODITIES responsible for pricing AUD, trading electricity and Resource Centre - reports (M&A, Green sheets,
wool derivatives, new pricing models: endowment warrants, share ratio options and or exotic Prospectus') and internet searches
options. One of main activities was to integrate diverse range of treasury products into a Stock services
single treasury system •Size: $5B in managed assets- total income $40M- Project finance, TI/TS Application Support Cost
equity & debt- Treasury- Trading government & corporate debt instruments TI/TS Technology Services Cost
Manulife OTTI (Other than Temporarily Impaired) CIBC Processes (FCU)
BUSINESS_PROCESS SUB_PROCESS
A/P Accrual
Interco loan Account for loan payable to treasury
Outstanding Cheques Clearing Accounting Outstanding Cheques
Accrue Liabilities ID significant individual liabilities
Accrue Obligations related to Securities Record Repos Position
Record Securities Sold Short Position
Calculate/ Collect Mortgage Income Originate a mortgage - recording of
acquisition costs on mortgage origination
Income Taxes Note Disclosure Compilation of Note Disclosure
Note Disclosure Aging of Deposits Demand, Notice & Term Deposits
Note Disclosure IR Sensitivity Loans & Deposits Aging & yields
Note Disclosure Mortgage and customer Mortgages & Consumer Loans
Loans

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 Note Disclosure Segment info Establish customer CIF (name, address, CP Issuance - Billing
& permanent information) CP Issuance - Book Based Maturity
Defer Acquisition Cost on Mortgages Calculate/invoice acquisition cost CP Issuance - Physical Maturity
Prepare amortization schedule CP Issuance-DCS Settlement
Defer Payments to Loblaws Defer Acquisition Cost of acquiring credit CP Issuance-Physical Settlement
products and points Domestic Equity /Bonds Settlements
EUC Applications General Controls Equity Arbitrage
Financial Statements Preparation Compilation of Notes to the Financial Futures & Options Settlements
Statements GIC Settlements
Get a mortgage loan on the books Funding Mortgages Institutional Equity Settlements - Equity Arbitrage
Get the Loans on the books Attach credit - PLC International Settlements
Disburse Funds for Personal Loans Money Market
GL/source system balancing Automatically compare ICBS and GL:M Money Market DTC/FED Settlements
balances Money Market US Settlements- Physical Trades
HR Bi-weekly review of payroll register Over The Counter Receipt of Securities
(Including New Hire, Transfers, and Over The Counter/Branch Receipt of Securities
Terminations) Safekeeping
ICBS Application Controls AS400 Recovery Security Lending and Borrowing
Change Management Segregation Management
ICBS Incident & Problem Management Stock Transfers
Process UK Securities Lending
ICBS Information Security Security Administration Compliance COB Disclosure
Maintain customer demand (chequing) Calculate and accrue daily interest Credit Mgt Monitor Credit
deposit Maintain interest rates Customer Customer Complaints Management
Transaction Cheque Clearing Satisfaction Customer Restitution
Transaction processing - EFT Derivatives Confirmations
Transaction processing - POS, ABM, Settlement Post-Settlement Investigations
Internet, TB - on Tandem Operations Pre-Settlement Investigations
Maintain customer loan Maintain interest rates in ICBS Settlements
Recognize interest calc & accrual Foreign Exchange Booking
Transaction Processing - Payments or Maintenance Account Information Maintenance
PLC cheques Customer Information Maintenance
Maintain customer notice (RSP) RSP Renewal Operator Profile Maintenance
deposits Suspense Account Maintenance
Maintain customer notice(savings) Transaction processing - Internet, ABM, Manage and Execute Transactions
deposit TB (transfers only) - on Tandem Monitor the Imperial Identify Substitute and Replacement Assets
Maintain residential mortgages All sub-process vehicles Reporting
Apply payments to Int. income and Management Investments
principal / Accrue Int. at month-end Processes Lending
Determine mortgage interest rates Procedures Information
Manage Bank Accounts Balance & Settle A/P Bank Account Regulatory Compliance
Balance & Settle ABM Unpostable, All Sales Management
EFT Return Bank Accounts Origination Adjudication
Balance & Settle ABM, POS, RB, SCD, Application Processing
Plus, Outbound EFT Bank Accounts Funding & Disbursement
Balance & Settle Cheque Clearing Origination Adjudication (Commercial)
Balance & Settle EFT Bank Account (Commercial) Funding & Disbursement (Commercial)
Balance & Settle General Operating, Outsourcing Outsourcing - ADP
Treasury, Mortgage, EFT, USD Bank Payments Cash Settlements
Balance & Settle Guarantee Payments Processing Credit Administration
Bank A/C Drafts & MO Investigations
Balance & Settle Guarantee Payments, Reports Balancing
Cheq Clr Bank A/C Loans Sanction Filtering
Balance & Settle Payroll Bank Validation & Message Repair
Balance & Settle Treasury Bank A/C Portfolio Credit Derivative Hedging
Manage Suspense Accounts Manage Operating Suspense A/C Management Credit Derivative Trading
Other Misc Suspense Accts Accounting Items in Suspense A/C Establish Portfolio Strategy
Purchase & pay for non interest Pay Outside Services (Amortized Trailer Hedging
expenses fees / Commissions) Portfolio Management
Pay Other Misc Expenses Proprietary Account Maintenance (CM, Talvest and SI only)
Purchase & pay other expenses Pay Other Expenses Products Account Opening (PPS)
Recognize deferred taxes Book Monthly Tax Recovery Account Opening/Closing/Transfers (CM/Talvest only)
Determine monthly tax rate - Acct Client Tax Reporting / Tax filing
Recognize fee income Recognize Amicus ABM Surcharge Financial Transactions/ Adjustments
Recognize Interac Charges (convenience Trust Accounting
fee auto charged for each customer txn) Registered 3rd Party Settlements - Brokerage
Recognize Returned Cheque Fees Products 3rd Party Settlements-Fixed Term
Recognize FOREX non-trading income Recognize other income Account Transfers (Internal)-Fixed Term
Adjustments - Brokerage
CIBC 26 Processes (OPC) – 113 Sub-processes
Adjustments-Fixed Term
Process Sub Process Client Support-Fixed Term
Brokerage & Trade Broker Services - Cash Processing Deposits-Fixed Term
Broker Services- Collateral Management GL Reporting-Fixed Term
Cash Management Monitoring & Compliance - Brokerage
Cash Management - Collection of Foreign Cheques Tax Reporting - Brokerage
Cash Management-Cheque Issuance Tax Reporting (GIC Withdrawals)-Fixed Term
Cash Management-Incoming wire payments/Cheque deposits Transfers - Brokerage
Cash Management-ISI Liasion Desk/Bank Reconciliation- Withdrawals- Brokerage
Break Resolution Withdrawals-Fixed Term

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 Sales Fulfillment Lending - Personal Loan Products
Lending - Small Business Loan Products
Small Business Account
Sales Origination Account Open - Personal Deposits
Account Open - Small Business Deposits
Security &Control CSP Application Processing
Database Control
Service - Inventory Ordering
Control
Servicing Annual Statement
Call Center
Discharge
Early Renewals
Product Changes
Renewals
Taxes
Transaction Processing
Servicing Annual Portfolio Review
(Commercial) Renewals (Commercial)
Transaction Processing (Commercial)
Technology Mgt IT Access Control
3rd Party Mutual Processing
Funds
Trade Finance Documentation Verification
Transaction Centralized Instruments Processing
Processing Cheque Processing
Deposit Processing Internal Business Processes and Financial
Inter Branch Payments (IBP) Processing
Withdrawal Processing
CIBC Legislative Compliance Management (LCM)

British Columbia Workplace Technology Services

Balance Scorecard and Performance Measures
Learning & Growth - Customers

Page 22 of 26
Corporate Accounting System (CAS) Business Transformation Initiative (BTI)

Page 23 of 26
 Business & Process
Distribution and service fees earned from mutual funds as percentage of average assets
of mutual fund investment portfolios managed or administered by Mellon Asset Servicing
Sector driven by: level of transaction activity and extent of services provided including
custody, accounting, administration, daily valuations, performance measurement, securities
lending, foreign exchange trading and investment manager back-office outsourcing, market
value of assets under administration and custody Institutional trust and custody
revenue/fees depend on volume of transactions in CM clients’ accounts + number of
accounts; types of services e.g. performance analytics; level of assets under custody or
administered. Revenue includes securities lending revenue, spread earned on reinvestment
of cash posted by borrower as collateral; percentage sharing of that earned spread with
custody clients who own securities FOREX trading revenues Payment solutions &
investor services fee revenue: cash management revenue, Investor Services revenue, and
revenue earned by Financial Markets Treasury Services/ Activity sector: ➢Financing-
related revenue: returns from corporate-owned life insurance; gains/ losses on
securitizations; letters of credit & acceptance fees; loan commitment fees; gains/losses on
loan sales/lease residuals. ➢Equity investment revenue: realized/unrealized gains/losses on
venture/non-venture capital investments
MIS Dashboards
Balance Scorecard Internal - GSS Trade Settlements

Balance Scorecard Internal - CMT Securities Transfer

Balance Scorecard Internal - CMT & GSS Assets under Administration

CIBC Mellon
History
CIBC Mellon was founded in 1996 after CIBC joined with Mellon Financial Corporation in a
50-50 joint venture named CIBC Mellon Global Securities Services (CMGSS). The
following year, 1997, CIBC purchased a 50% stake in The R-M Trust Company from Mellon,
which would become CMGSS's sister company, CIBC Mellon Trust Company (CMTC).
CIBC Mellon acquired the Pension and Institutional Trust businesses from Canada Trust in
1997 and the global custody business from the Bank of Montreal in 1999. In 2002 CIBC
Mellon acquired TD 3rd party investment fund custody business.
Cash Processing, AR, Revenues Fees

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Balance Scorecard Finance Project Plan

CIBC CAD Chief Accountant Scorecard 2005

Operations

Balance Scorecard Client

Balance Scorecard Learning & Growth

Scope

Finance

Customer/Client

Page 25 of 26
Growth

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