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Financial Instruments - Risk Management

12 Months Ended

Oct. 31, 2025

34	Financial Instruments – Risk Management

The Bank’s risk management framework to monitor, evaluate, measure and manage risks is disclosed in Management’s Discussion and Analysis (MD&A). These disclosures are incorporated by cross-reference in the Consolidated Financial Statements as permitted under IFRS 7, Financial Instruments: Disclosures. The grey shaded text and tables marked with an asterisk (*) in the “Group Financial Condition” and “Risk Management” sections of the MD&A form an integral part of the 2025 Consolidated Financial Statements.

The Bank’s principal business activities result in a balance sheet that consists primarily of financial instruments. In addition, the Bank uses derivative financial instruments for both trading and hedging purposes. The principal financial risks that arise from transacting financial instruments include credit risk, liquidity risk and market risk. The Bank’s framework to monitor, evaluate and manage these risks is consistent with that in place as at October 31, 2025:

•

extensive risk management policies define the Bank’s risk appetite, set the limits and controls within which the Bank and its subsidiaries can operate, and reflect the requirements of regulatory authorities. Risk appetite is approved by the Bank’s Board of Directors, either directly or through the Risk Committee of the Board (the Board);

•

guidelines are developed to clarify risk limits and conditions under which the Bank’s risk policies are implemented;

•

processes are implemented to identify, evaluate, document, report and control risk. Standards define the breadth and quality of information required to make a decision; and

•

compliance with risk policies, limits and guidelines is measured, monitored and reported to ensure consistency against defined goals.

Further details on the fair value of financial instruments and how these amounts were determined are provided in Note 6. Note 9 provides details on the terms and conditions of the Bank’s derivative financial instruments including notional amounts, remaining term to maturity, credit risk, and fair values of derivatives used in trading and hedging activities.

(a)	Credit risk

Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to honour its financial or contractual obligations to the Bank. The Bank’s Credit Risk Appetite and Credit Risk Policy are developed by its Global Risk Management (GRM) department and limits are reviewed and approved by the Board on an annual and biennial basis, respectively. The Credit Risk Appetite defines target markets and risk tolerances that are developed at an

all-Bank

level, and then further refined at the business line level. The objectives of the Credit Risk Appetite are to ensure that, for the Bank, including the individual business lines:

•

target markets and product offerings are well defined;

•

the risk parameters for new underwritings and for the portfolios as a whole are clearly specified; and

•

transactions, including origination, syndication, loan sales and hedging, are managed in a manner to ensure the goals for the overall portfolio are met.

The Credit Risk Policy sets out, among other things, the credit risk rating systems and associated parameter estimates, the delegation of authority for granting credit, and the calculation of allowance for credit losses. It forms an integral part of enterprise-wide policies and procedures that encompass governance, risk management and control structure.

The Bank’s credit risk rating systems are designed to support the determination of key credit risk parameter estimates which measure credit and transaction risk. For

non-retail

exposures, parameters are associated with each credit facility through the assignment of borrower and facility ratings. Borrower risk is evaluated using methodologies that are specific to particular industry sectors and/or business lines. The risk associated with facilities of a given borrower is assessed by considering the facilities’ structural and collateral-related elements. For retail portfolios, product specific models assign accounts into homogeneous segments using internal and external borrower/facility-level credit experience. This process provides for a meaningful differentiation of risk and allows for appropriate and consistent estimation of loss characteristics at the model and segment level. Further details on credit risk relating to derivatives are provided in Note 9(c).

(i)	Credit risk exposures

Credit risk exposures disclosed below are presented based on the Basel framework utilized by the Bank i.e., exposures subject to credit risk capital. The Bank uses the Internal Ratings Based approach (IRB) for all material Canadian, U.S., European portfolios, and for a significant portion of all international corporate and commercial portfolios. Under the Advanced Internal Ratings Based (AIRB) approach, the Bank uses internal risk parameter estimates, based on historical experience and appropriate margin of conservatism, for probability of default (PD), loss given default (LGD) and exposure at default (EAD). Under Basel III rules, there are IRB requirements for internally developed model parameters under AIRB, including scope restrictions which limit certain asset classes to only the Foundation Internal Ratings Based (FIRB) approach. For those asset classes (e.g. Large Corporates, Banks, etc.) the FIRB approach utilizes the Bank’s internally modeled PD parameters combined with internationally prescribed LGD and EAD parameters. The remaining portfolios, including other individual portfolios, are treated under the standardized approach.

Under the standardized approach, credit risk is estimated using the risk weights as prescribed by the Basel framework either based on credit assessments by external rating agencies or based on the counterparty/exposure type for

non-retail

exposures and product type for retail exposures. The external ratings the Bank uses are issued by S&P, Fitch and/or DBRS specifically for the Bank’s exposures (i.e. issue specific ratings) if available, otherwise issuer ratings are used following OSFI’s CAR guidelines requirements. Standardized risk weights also take into account other factors such as specific provisions for defaulted exposures, eligible collateral, and

loan-to-value

for real estate secured retail exposures.


As at October 31 ($ millions)	2025								2024
	Exposure at default (1)
Category	Drawn (2)		Undrawn commitments		Other exposures (3)		Total		Total
By counterparty type
Non-retail
IRB portfolio
Corporate	$	189,918	$	71,341	$	113,508	$	374,767	$	357,600
Bank		12,924		12,253		23,194		48,371		56,648
Sovereign		240,416		3,487		11,086		254,989		258,858
		443,258		87,081		147,788		678,127		673,106
Standardized portfolio
Corporate		49,395		4,901		23,786		78,082		65,375
Bank		1,609		69		141		1,819		3,213
Sovereign		24,372		523		243		25,138		24,320
		75,376		5,493		24,170		105,039		92,908
Total non-retail	$	518,634	$	92,574	$	171,958	$	783,166	$	766,014
Retail
IRB portfolio
Real estate secured	$	267,856	$	60,485	$	–	$	328,341	$	306,395
Qualifying revolving		18,710		63,595		–		82,305		67,585
Other retail		27,670		4,624		–		32,294		38,665
		314,236		128,704		–		442,940		412,645
Standardized portfolio
Real estate secured		67,179		102		–		67,281		63,572
Other retail		52,552		10,313		76		62,941		63,214
		119,731		10,415		76		130,222		126,786
Total retail	$	433,967	$	139,119	$	76	$	573,162	$	539,431
Total	$	952,601	$	231,693	$	172,034	$	1,356,328	$	1,305,445
By geography (4)
Canada	$	587,309	$	175,314	$	49,503	$	812,126	$	783,178
United States		137,005		31,646		83,209		251,860		238,201
Chile		54,340		4,645		3,588		62,573		60,179
Mexico		52,283		3,901		3,183		59,367		58,439
Peru		29,386		2,187		2,194		33,767		32,609
Colombia		15,435		1,777		941		18,153		15,015
Other International
Europe		17,423		6,241		22,195		45,859		38,776
Caribbean		32,841		2,152		1,250		36,243		36,170
Latin America (other)		15,218		948		1,080		17,246		17,742
All other		11,361		2,882		4,891		19,134		25,136
Total	$	952,601	$	231,693	$	172,034	$	1,356,328	$	1,305,445

(1)	Exposure at default is presented after credit risk mitigation. Exposures exclude equity securities and other assets. Portfolios under the Standardized Approach are reported net of specific allowances for credit losses and net of collateral amounts treated under the Comprehensive Approach.

(2)	Non-retail drawn includes loans, acceptances, deposits with financial institutions and FVOCI debt securities. Retail drawn includes residential mortgages, credit cards, lines of credit, other personal loans and small business treated as other regulatory retail.

(3)	Other exposures include off-balance sheet lending instruments such as letters of credit, letters of guarantees, securitizations, derivatives and repo-style transactions (reverse repurchase agreements, repurchase agreements, securities lending and securities borrowing), net of related collateral.

(4)	Geographic segmentation is based upon the location of the ultimate risk of the credit exposure.

Consolidated Statement of Financial Position asset categories cross-referenced to credit risk exposures

The table below provides mapping of

on-balance

sheet asset categories that are included in the various Basel III exposure categories as presented in the credit ris

exposure summary table of these consolidated financial statements. In addition, it also provides other exposures which are subject to market risk and/or other assets which are not subject to market and credit risk with a reconciliation to the Consolidated Statement of Financial Position. The Bank calculates market risk capital based on the Standardized Approach under the Fundamental Review of the Trading Book (FRTB) framework, including its Trading vs. Banking boundary requirements. The credit risk exposures on certain assets such as cash, precious metals, investment securities (equities) and other assets are not included in the credit risk exposure summary table. Also excluded from the credit risk exposures are certain trading assets and all assets of the Bank’s insurance subsidiaries.

Credit Risk Exposures

Other Exposures

Drawn

Other Exposures

Market Risk Exposures

As at October 31, 2025 ($ millions)

Non-retail

Retail

Securitization

Repo-style
Transactions

Derivative
Financial
Instruments

Equity

Also
subject to
Credit Risk

All Other

(1)

Total

Cash and deposits with financial institutions

62,171

–

3,796

65,967

Precious metals

–

5,156

–

5,156

Trading assets

Securities

103

–

140,741

–

140,844

Loans

1,641

–

744

6,846

–

8,487

Other

–

2,892

–

2,892

Financial assets designated at fair value through profit or loss

–

Securities purchased under resale agreements and securities borrowed

–

203,008

–

203,008

Derivative financial instruments

–

46,531

–

42,120

–

46,531

Investment securities

146,457

–

2,258

–

1,233

149,948

Loans:

Residential mortgages

(2)

58,663

311,413

–

115

370,191

Personal loans

5,940

95,171

9,456

–

110,567

Credit cards

–

14,585

313

–

3,147

18,045

Business & government

239,898

13,170

25,846

–

791

279,705

Allowances for credit losses

(3)

(465

)

(1,234

)

–

(5,764

)

(7,463

)

Customers’ liability under acceptances

177

–

177

Property and equipment

–

4,881

Investment in associates

–

6,252

6,317

Goodwill and other intangibles assets

–

16,169

Other (including Deferred tax assets)

6,210

1,154

–

436

–

403

30,417

38,620

Total

520,795

434,259

35,615

203,444

46,531

2,323

42,864

156,038

61,037

1,460,042

(1)	Includes the Bank’s insurance subsidiaries’ assets and all other assets which are not subject to credit and market risks.

(2)	Includes $52.8 billion in mortgages guaranteed by Canada Mortgage Housing Corporation and federally backed privately insured mortgages.

(3)	Amounts for IRB exposures are reported gross of allowances and amounts for standardized exposures are reported net of allowances.

Credit Risk Exposures

Other Exposures

Drawn

Other Exposures

Market Risk Exposures

As at October 31, 2024 ($ millions)

Non-retail

Retail

Securitization

Repo-style
Transactions

Derivative
Financial
Instruments

Equity

Also
subject to
Credit Risk

All Other

(1)

Total

Cash and deposits with financial institutions

60,501

–

3,359

63,860

Precious metals

–

2,540

–

2,540

Trading assets

Securities

331

–

119,581

–

119,912

Loans

933

–

569

6,716

–

7,649

Other

–

2,166

–

2,166

Financial assets designated at fair value through profit or loss

–

Securities purchased under resale agreements and securities borrowed

–

200,543

–

200,543

Derivative financial instruments

–

44,379

–

39,736

–

44,379

Investment securities

147,607

–

5,008

–

217

152,832

Loans:

Residential mortgages

(2)

61,467

289,358

–

116

350,941

Personal loans

711

101,821

3,847

–

106,379

Credit cards

–

13,892

162

–

3,320

17,374

Business & government

261,903

12,904

17,627

–

237

292,671

Allowances for credit losses

(3)

(363

)

(1,170

)

–

(5,003

)

(6,536

)

Customers’ liability under acceptances

149

–

)

148

Property and equipment

–

5,252

Investment in associates

–

1,759

1,821

Goodwill and other intangibles assets

–

16,853

Other (including Deferred tax assets)

5,968

1,220

–

343

–

448

25,264

33,243

Total

539,207

418,025

21,636

200,886

44,379

5,070

40,305

131,451

51,373

1,412,027

(1)	Includes the Bank’s insurance subsidiaries’ assets and all other assets which are not subject to credit and market risks.

(2)	Includes $56.3 billion in mortgages guaranteed by Canada Mortgage Housing Corporation and federally backed privately insured mortgages.

(3)	Amounts for IRB exposures are reported gross of allowances and amounts for standardized exposures are reported net of allowances.

(ii)	Credit quality of non-retail exposures

Credit decisions are made based upon an assessment of the credit risk of the individual borrower or counterparty. Key factors considered in the assessment include: the borrower’s management; the borrower’s current and projected financial results and credit statistics; the industry in which the borrower operates; economic trends; and geopolitical risk. Banking units and Global Risk Management also review the credit quality of the credit portfolio across the organization on a regular basis to assess whether economic trends or specific events may affect the performance of the portfolio.

The Bank’s

non-retail

portfolio is well diversified by industry. As at October 31, 2025, and October 31, 2024, a significant portion of the authorized corporate and commercial lending portfolio was internally assessed at a grade that would generally equate to an investment grade rating by external rating agencies. There has not been a significant change in concentrations of credit risk since October 31, 2024.

Internal grades (IG) are used to differentiate the risk of default of a borrower. The following table cross references the Bank’s internal borrower grades with equivalent ratings categories utilized by external rating agencies:

Cross referencing of internal ratings to external ratings

(1)

Equivalent External Rating

S&P and Fitch

Moody’s

Morningstar DBRS

Internal Grade

Internal Grade Code

PD Range

(2)

AAA to AA+

Aaa to Aa1

AAA to AA (high)

–

0.0000

% –

0.0565

AA to A+

Aa2 to A1

AA to A (high)

0.0565

% –

0.0693

A to A-

A2 to A3

A to A (low)

Investment grade

0.0693

% –

0.0833

BBB+

Baa1

BBB (high)

0.0833

% –

0.1243

BBB

Baa2

BBB

0.1243

% –

0.1976

BBB-

Baa3

BBB (low)

0.1976

% –

0.2743

BB+

Ba1

BB (high)

0.2743

% –

0.3806

Ba2

0.3806

% –

0.7061

BB-

Ba3

BB (low)

Non-Investment grade

0.7061

% –

1.4290

B+

B (high)

1.4290

% –

2.4715

B to B-

B2 to B3

B to B (low)

2.4715

% –

6.2065

CCC+

Caa1

–

6.2065

% –

15.9382

CCC

Caa2

–

Watch list

15.9382

% –

28.5499

CCC-

to CC

Caa3 to Ca

–

28.5499

% –

48.3748

–

48.3748

% –

100.0000

Default

100%

(1)	Applies to non-retail portfolio.

(2)	PD Ranges as at October 31, 2025. The Range does not include the upper boundary for the row.

Non-retail

IRB portfolio

The credit quality of the

non-retail

IRB portfolio, expressed in terms of risk categories of borrower internal grades is shown in the table below:


			2025								2024
			Exposure at Default (1)
As at October 31 ($ millions) Category of internal grades	IG Code		Drawn		Undrawn commitments		Other exposures (2)		Total		Total
Investment grade		99 – 98	$	144,086	$	1,557	$	39,788	$	185,431	$	174,122
		95		36,203		13,422		30,882		80,507		71,282
		90		15,314		12,067		28,875		56,256		49,596
		87		26,472		13,771		16,458		56,701		63,699
		85		25,166		10,987		8,758		44,911		49,980
		83		43,384		11,155		5,924		60,463		69,342
Non-Investment grade		80		39,476		10,262		5,810		55,548		54,770
		77		25,637		6,542		4,824		37,003		40,729
		75		20,174		4,373		4,556		29,103		27,324
		73		7,913		1,464		756		10,133		10,140
		70		4,137		1,216		707		6,060		3,791
Watch list		65		907		60		43		1,010		1,592
		60		876		109		171		1,156		986
		40		910		75		134		1,119		889
		30		276		9		2		287		232
Default		21		1,482		12		100		1,594		1,313
Total			$	392,413	$	87,081	$	147,788	$	627,282	$	619,787
Government guaranteed residential mortgages (3)				50,845		–		–		50,845		53,319
Total			$	443,258	$	87,081	$	147,788	$	678,127	$	673,106

(1)	After credit risk mitigation.

(2)	Includes off-balance sheet lending instruments such as letters of credit, letters of guarantees, securitizations, derivatives and repo-style transactions (reverse repurchase agreements, repurchase agreements and securities lending and borrowing), net of related collateral.

(3)	These exposures are classified as sovereign exposures and are included in the non-retail category.

Non-retail

standardized portfolio

The

non-retail

standardized portfolio relies on external credit ratings (e.g. S&P, Fitch, Morningstar DBRS, etc.) of the borrower, if available, to compute regulatory capital for credit risk. Exposures are risk weighted based on prescribed percentages and a mapping process as defined within OSFI’s Capital Adequacy Requirements Guideline.

Non-retail

standardized portfolio as at October 31, 2025 comprised of drawn, undrawn and other exposures to corporate, bank and sovereign counterparties amounted to $105 billion (October 31, 2024 – $93 billion). Within this portfolio, the majority of Corporate/Commercial exposures are to unrated counterparties, mainly in Canada, U.S., Mexico, Chile, Peru and Colombia.

(iii)

Credit quality of retail exposures

The Bank’s retail portfolios consist of a number of relatively small loans to a large number of borrowers. The portfolios are distributed across Canada and a wide range of countries. As such, the portfolios inherently have a high degree of diversification. In addition, as of October 31, 2025, 23% of the Canadian banking residential mortgage portfolio is insured and the average

loan-to-value

ratio of the uninsured portion of the portfolio is 54%.

Retail AIRB portfolio

The data in the table below provides a distribution of the retail AIRB exposures within each PD range by asset class:


As at October 31 ($ millions)	2025												2024
	Exposure at default (1)
			Real estate secured
Category of (PD) grades	PD range		Mortgages		HELOC		Qualifying revolving		Other retail		Total		Total
Exceptionally Low		0.0000 % – 0.0500 %	$	89,983	$	57,130	$	15,921	$	792	$	163,826	$	145,243
Very Low		0.0501 % – 0.1999 %		95,370		19,900		36,811		5,792		157,873		148,919
Low		0.2000 % – 0.9999 %		43,971		–		14,536		16,932		75,439		79,011
Medium Low		1.0000 % – 2.9999 %		11,436		5,509		9,715		4,803		31,463		25,478
Medium		3.0000 % – 9.9999 %		7		–		2,719		2,683		5,409		7,524
High		10.0000 % – 19.9999 %		3,177		938		1,690		614		6,419		3,232
Extremely High		20.0000 % – 99.9999 %		2		–		785		511		1,298		2,263
Default		100 %		791		127		128		167		1,213		975
Total			$	244,737	$	83,604	$	82,305	$	32,294	$	442,940	$	412,645

(1)	After credit risk mitigation.

Retail standardized portfolio

The retail standardized portfolio of $130 billion as at October 31, 2025 (2024 – $127 billion) was comprised of residential mortgages, personal loans, credit cards and lines of credit to individuals, mainly in the Latin American and Caribbean region. Of the total retail standardized exposures, $67 billion (2024 – $64 billion) was represented by mortgages and loans secured by residential real estate, mostly with a

loan-to-value

ratio of below 80%.

(iv)	Collateral

Collateral held

In the normal course of business, to reduce its exposure to counterparty credit risk, the Bank receives collateral for capital markets related activities. The following are examples of the terms and conditions customary to collateral for these types of transactions:

•

The risks and rewards of the pledged assets reside with the pledgor.

•

Additional collateral is required when the market value of the transaction exceeds thresholds agreed upon with the pledgor.

•

The Bank is normally permitted to sell or repledge the collateral it receives, although this right is specific to each agreement under which the collateral is pledged.

•

Upon satisfaction of the obligation, the Bank must return the pledged assets, unless the Bank has the right to sell or repledge the collateral it receives, in which case the Bank must return comparable collateral to the pledgor.

As at October 31, 2025, the approximate market value of cash and securities collateral accepted that may be sold or repledged by the Bank was $409 billion (2024 – $359 billion). This collateral is held primarily in connection with reverse repurchase agreements, margin loans, securities lending and derivative transactions. The Bank also borrows securities under standard securities borrowing agreements that it is able to

re-pledge.

Including these borrowed securities, the approximate market value of securities collateral accepted that may be sold or

re-pledged

was $350 billion (2024 – $300 billion), of which approximately $67 billion was not sold or

re-pledged

(2024 – $60 billion).

Collateral pledged

In the normal course of business, securities and other assets are pledged to secure an obligation, participate in clearing or settlement systems, or operate in a foreign jurisdiction. Note 33(c) details the nature and extent of the Bank’s asset pledging activities. Asset pledging transactions are conducted under terms that are common and customary to standard derivative, securities financing, and other borrowing activities. Standard risk management controls are applied with respect to asset pledging.

Assets acquired in exchange for loans

The carrying value of assets acquired in exchange for loans as at October 31, 2025 was $221 million (2024 – $312 million) mainly comprised of real estate and was classified as either held for sale or held for use as appropriate.

(b)	Liquidity risk

Liquidity risk is the risk that the Bank is unable to meet its financial obligations in a timely manner at reasonable prices. Our liquidity risk management framework and key risk measures are disclosed in the gray-shaded text and tables marked with an asterisk (*) in the “Risk Management” section of the MD&A.

(c)	Market risk

Market risk arises from changes in market prices and rates (including interest rates, credit spreads, equity prices, foreign exchange rates and commodity prices), the correlations between them, and their levels of volatility. Our market risk management framework and

ey risk measures are disclosed in the gray-shaded text and tables marked with an asterisk (*) in the “Risk Management” section of the MD&A.