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Toronto Dominion Bank (TD Bank)

TD Bank is the only bank in our sample that appears to have maintained a working ERM framework before the crisis. The 2007 TD Annual Report presents the Enterprise Risk Framework and "the major categories of risk to which we are exposed, and how they are interrelated." The report defines ERM in appropriate terms:

This framework outlines appropriate risk oversight processes and the consistent communication and reporting of key risks that could hinder the achievement of our business objectives and strategies.[1]

Among other elements of the framework,

The corporate Risk Management function, headed by the Chief Risk Officer, is responsible for setting enterprise-level policies and practices that reflect the risk tolerance of the Bank, including clear protocols for the escalation of risk events and issues. The Risk Management Department monitors and reports on discrete business and enterprise-level risks that could have a significant impact.[2]

TD Bank provides a useful lesson about the need to surface anomalous facts, investigate them, and make a disciplined decision. While the FCIC did not interview people from TD Bank, the company's annual reports and other public information tell the story. In the early 2000s, Toronto Dominion Bank had had an active international business in structured products. Then, with little explanation, CEO Edmund Clark announced in the company's 2005 annual report, "We ... made the difficult business decision to exit our global structured products business... While the short-term economic cost to the Bank is regrettable, I am pleased that we have taken the steps we have and that we can continue to focus on growing our businesses for the future to deliver long-term shareholder value."[3] The company reported taking significant losses as it unwound its positions in 2005 and 2006.

How did CEO Clark make the decision both to avoid exposure to the U.S. subprime market and to shed the firm's exposure to structured mortgage products and derivatives? "I'm an old-school banker," Clark told a reporter in May 2008. "I don't think you should do something you don't understand, hoping there's somebody at the bottom of the organization who does."[4]

Clark said he spent several hours a week meeting with experts to understand the financial products being traded by the bank's wholesale banking unit. "The whole thing didn't make common sense to me," Clark said. "You're going to get all your money back, or you're going to get none of your money back. I said, 'Wow! if this ever went against us, we could take some serious losses here.'"[2]

Clark recalled that stock analysts at the time wrote that he was an "idiot" for taking his long-term perspective.[6] Yet, as the crisis hit, the company could report that it held no exposure to U.S. subprime mortgages, no direct exposure to third-party asset-backed commercial paper except for exposure of its mutual funds and asset management group, and no direct lending exposure to hedge funds, with only nominal trading exposure.[7] Because TD Bank came through the crisis intact, it was able to begin systematic expansion from its Canadian base into the U.S. market. By 2013, through a series of acquisitions, TD Bank had become one of the 10 largest U.S. banks, with branches extending along the East Coast from Maine to Florida.

  • [1] TD Bank Financial Group, "152nd Annual Report 2007," 60-61.
  • [2] Ibid.
  • [3] W. Edmund Clark, "President and CEO's Message," TD Bank Financial Group 2005 Annual Article, 2006, 6.
  • [4] Bloomberg, "The Bank That Said 'No' to Subprime Debt," Sydney Morning Herald, May 27, 2008. Available at -debt-20080527-2ihd.html.
  • [5] Ibid.
  • [6] TD Bank Financial Group, National Bank 2010 Financial Services Conference, presentation, March 30, 2010.
  • [7] TD Bank Financial Group, "Investor Presentation, September 2007," Slide no. 15.
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