Mitsubishi UFJ Financial Group January 2012 MUFG Risk Management
This document contains forward - looking statements in regard to forecasts, targets and plans of Mitsubishi UFJ Financial Group, Inc. (“MUFG”) and its group companies (collectively, “the group”). These forward - looking statements are based on information currently available to the group and are stated here on the basis of the outlook at the time that this document was produced. In addition, in producing these statements certain assumptions (premises) have been utilized. These statements and assumptions (premises) are subjective and may prove to be incorrect and may not be realized in the future. Underlying such circumstances are a large number of risks and uncertainties. Please see other disclosure and public filings made or will be made by MUFG and the other companies comprising the group, including the latest kessantanshin, financial reports, Japanese securities reports and annual reports, for additional information regarding such risks and uncertainties. The group has no obligation or intent to update any forward-looking statements contained in this document. In addition, information on companies and other entities outside the group that is recorded in this document has been obtained from publicly available information and other sources. The accuracy and appropriateness of that information has not been verified by the group and cannot be guaranteed. The financial information used in this document was prepared in accordance with accounting standards generally accepted in Japan, or Japanese GAAP. < Definitions of abbreviation used in this document > ： Mitsubishi UFJ Financial Group ： Bank of Tokyo-Mitsubishi UFJ MUFG BTMU ： Mitsubishi UFJ Trust and Banking ： Mitsubishi UFJ S MUTB MUS HD ecurities Holdings ： Mitsubishi UFJ Morgan S ： Morgan S MUMS S tanley S ecurities MS MS tanley MUFG S ecurities ： Mitsubishi UFJ NICOS ： Mitsubishi UFJ Lease & Finance MUN MUL ： Mitsubishi UFJ S MUS I ecurities International UB :Union Bank
Contents 1. Outline of risk management framework 3 2. Credit risk management 7 3. Market risk management 12 4. Liquidity risk management 16 2
1.Outline of risk management framework Management framework Holding company (MUFG) Board of Directors Risk Management Management Committee Executive Planning Committee Committee (includes crisis management ) (includes ALM) Groupwide Credit Market risk, Liquidity Corporate Risk risk, Operational risk, Committee Management Division Operations risk, (Coordinates risk management ) Information asset risk Credit & Investment Credit risk Management Division Public Relations Reputation risk Division Establish fundamental policy Discuss and Discuss and report Guidance and advice report Group companies BTMU MUSHD MUTB Board of Directors Board of Directors Board of Directors Risk Management Executive Committee ALM Committee Executive Committee Committee Executive Committee Management (includes crisis management ) Credit & Investment ALM Committee ALM Council Planning Committee Council Corporate Risk Market risk, Liquidity Credit & Investment Management Division risk, Operational risk Management (Coordinates risk management ) Investment Capital Management Committee Market risk, Liquidity Market risk, Liquidity Corporate Risk Corporate Risk Management Credit Policy & Committee risk, Operational risk, risk, Credit risk, Credit risk Management Division Management Division Committee Planning Division Information asset risk (Coordinates risk management ) Operational risk (Coordinates risk management Credit Committee Internal Transaction S ervices S ettlement risk Administration Division Enhancement Credit Risk Financial Planning Operational Risk Committee Credit risk Integrated risk Management Division Operations S ervices Division Management Operations risk Planning Division Committee Crisis Management Operations Planning Committee Operations risk Compliance & Legal risk, Information Compliance & Legal Division Information S ecurity Information S ecurity asset risk Division, S ystems Information asset risk Division Management Corporate Department Committee Administration Tangible asset risk Corporate Corporate Division Communications Reputation risk Administration Tangible asset risk Division Division Personnel risk Personnel Division Human Resources Personnel risk Division Compliance & Legal Legal risk Compliance & Legal Division Legal risk Division Other Subsidiaries Corporate Planning Public Relations Reputation risk Reputation risk Division Division 3
1.Outline of risk management framework Management process by risk Risk Definition Assessment Control Monitoring � Risk of incurring loss due to � Quantification of credit risk � Streamlining of organization, � Amount of credit risk Credit declining or loss of asset value � Internal credit rating system and control procedures � Credit portfolio Risk � Decision-making authority resulting from a deterioration in a � Asset evaluation and � Compliance with guidelines counterparty’ s financial condition � Credit concentration guideline assessment � Credit cost etc. � Pricing policy � System for provisions/ write- � Reporting to management � RWA control offs � Management of action plan for � Credit costs � S troubled borrowers tress tests � Verification of parameters � Proactive management (Early � Individual screening Warning system) � Credit examination � Amount of market risk � Risk of incurring loss due to price � Quantification of market risk � Streamlining of organization, Market fluctuation in portfolio � Back-testing and control procedures (VaR, VaI and VaE) Risk � Position limits assets/ liabilities by fluctuation in � Verificat ion of quantificat ion � Compliance with limits market risk factors including � Maximum loss ceiling, loss-cut model � Outlier ratio interest rates, currencies, stock rules � Calculation of fair value prices, etc. (market risk). � S � Net interest income (NII) ecurities investment � S � Risk of incurring loss due to trades tress tests standards � Reporting to management not made in necessary volumes at � Market share ratio / Bid-offer appropriate levels resulting from market turmoil or insufficient sentiment trade base (market liquidity risk). � Conditions of liquidity funding � Risk of incurring loss due to higher � Liquidity funding amount � Streamlining of organization, Liquidi- funding costs resulting from � S and control procedures � Compliance with cash flow tructure of liquidity funding ty � Cash flow management index market turbulence or � Buffer of assets management index deterioration of MUFG’ s financial � Management by ‘ stages” Risk � S � Reporting to management tress tests condit ion et c. (contingency plan) � Liquidity risk tolerance � Amount of operational risk � Risk of incurring loss due to � Quant ificat ion of operat ional � Streamlining of organization, Opera- inadequate or malfunction of risk and control procedures � Occurrence of individual cases tional � CS internal processes/ personnel/ � Qualitative analysis (Control A, voluntary inspection � Key risk indicators (KRI) Risk systems, or external events. � Preventive measures for S elf Assessment - CS A) � Reporting to management recurrence of accidents � Business continuity plan (BCP) � Amount of integrated risk � Various risks that may impair � Internal capital adequacy � Streamlining of organization, Inte- capital when measured under an assessment process (ICAAP) and control procedures � Amount of risk by business units grated � Capital allocat ion plan integrated crit eria. � S tress tests Risk � Risk appetite 4
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