TD Bank Financial Group Implementation of Basel III Liquidity Ratios, Liquidity Stress Testing, and Contingency Funding

1. TD Bank Financial GroupImplementation of Basel III Liquidity Ratios, Liquidity Stress Testing, and Contingency Funding PlansPresented by Dervish Halil May 11, 2011

2. Basel III: LCR, NSFR, and other liquidity management tools Identifying the warning signs of a liquidity crisis � market related monitoring tools Identification and Use of Key Risk Indicators Designing Liquidity Stress Testing Designing Stress Scenarios Modeling a Diverse Range of Stresses Industry best practices and regulatory developments Timeline of regulatory developments Best practices for liquidity stress testing and contingency funding planning Resources, References, and Q&A To ensure adequate liquidity coverage and sustain ongoing operations and reputation in the event of a funding disruption For funding planned and committed asset growth and strategic opportunities and acquisitions With respect to deposit instruments, term, customers, distribution channels and currencies In debt and securitization markets with a high priority on maintenance of high investment grade credit rating The market being the regulatory environment, banking industry, and financial markets To ensure the pricing for all loan and deposit products and/or business activities (both on- and off-balance sheet) incorporates an appropriate charge to cover associated liquidity risk To ensure adequate liquidity coverage and sustain ongoing operations and reputation in the event of a funding disruption For funding planned and committed asset growth and strategic opportunities and acquisitions With respect to deposit instruments, term, customers, distribution channels and currencies In debt and securitization markets with a high priority on maintenance of high investment grade credit rating The market being the regulatory environment, banking industry, and financial markets To ensure the pricing for all loan and deposit products and/or business activities (both on- and off-balance sheet) incorporates an appropriate charge to cover associated liquidity risk

3. Basel III: LCR and NSFR The liquidity coverage ratio (LCR) is designed to ensure banks hold sufficient, unencumbered liquid assets in order to cover cash outflows during a 30 day period of severe firm specific and systemic market stress The net stable funding ratio (NSFR) aims to encourage more medium and long term funding of the assets and activities of banks, and the stress is firm specific over an extended 1 year time horizon Firms have until 2015 (LCR) and 2018 (NSFR) to report and meet the minimum 100% requirements

4. Basel III: LCR and NSFR Challenges Firm-wide and even subsidiary level reporting may be required Firms operating in multiple jurisdictions need to ensure local regulatory discretionary elements are appropriately factored into aggregate reporting  � Presents interpretation, data consolidation, standardization, and aggregation challenges Unintended consequences of the implementation of the ratios include, but are not limited to: The efficiency of financial markets The availability of financial assets, and the distortion of the demand for these financial assets The stability of financial institutions The cost of extending credit to the Canadian and global economy

5. Basel III: Implementation TD�s Implementation of reporting Currently, QIS is being reported using end user computing standards compliant spreadsheet and database tools Gathering of business requirements necessary for a longer-term, strategic, robust systems-based solution is underway Systems-based solution should be able to handle evolving reporting templates, regulations, and requirements communicated by the regulators

6. Basel III: Monitoring Tools and Other Best Practices Guidelines In addition to the LCR and NSFR, other Basel III monitoring tools include: Contractual maturity mismatch Concentration of funding Available unencumbered assets LCR by significant currency Other market-related monitoring tools Other best practices include In addition to the Basel III liquidity standards, the 2008 �Principles for Sound Liquidity Risk Management� offers best practices guidelines as follows: Board and senior management oversight Establishment of policies and risk appetite Allocating liquidity costs, benefits, and risks to all business activities Liquidity and enterprise-wide stress scenario testing Development of robust contingency funding plans

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8. Identifying the Warning Signs of a Liquidity Crisis Early Warning Indicators TD analyzes both qualitative and quantitative early warning indicators relevant to the firm�s liquidity risk profile  Frequent dashboard review by senior management of indicators, status, outlook, and liquidity impact are used to assess liquidity operating stage If the outlook of key high impact liquidity risk drivers deteriorates, it may trigger a change in operating stage In addition, senior management across various disciplines use their expertise and judgment beyond the indicators to initiate discussions on further potential risks

9. Early Warning Indicators

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11. Considerations in Designing Stress Scenarios Utilize integrated approach when developing scenario specifications Leverage subject matter experts across various disciplines, including but not limited to Economics, Credit, Market and Operational Risk, and Finance Assess cash flow implications related to key liquidity risk drivers Consider different degrees of severity by varying scenarios� duration and impact levels Consider relationships between risk drivers Leverage combination of subject matter expert judgement and observed quantitative relationships Ensure management reviews results Assess results against established risk appetite and take actions to remediate accordingly

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13. Timeline: Industry Best Practices and Regulatory Guidelines

14. Stress Testing Best Practices Know your business and inherent liquidity risk drivers Institution complexity and level of exposures should drive stress testing framework and cash flow modeling assumptions Use a variety of stress scenarios, time horizons and severity levels Stress testing should be run on a regular basis As the operating stage becomes more severe, frequency of testing should increase Conduct regular review of stress testing outcomes to ensure alignment with the established liquidity risk appetite Any liquidity gaps exceeding risk tolerance merit remedial action Results should be integrated with the firm�s contingency funding planning

15. Contingency Funding Planning Best Practices Contingency funding plans provide clarity during deteriorating liquidity conditions Robust CFPs clarify strategies, roles and responsibilities when total focus should be given to mitigating the firm�s exposure to potential or realized adverse liquidity conditions Management should assess the operating stage and execute the applicable remediating actions Fully integrated with stress testing framework Know your business and available sources of liquidity Considers existing sources of liquidity and whether it is sufficient to fund normal operating requirements under stress events Identifies potential alternative contingent liquidity sources Considers the firm�s specific legal, regulatory, and tax related encumbrances to available sources of liquidity

16. Contingency Funding Planning Best Practices Robust CFPs ensure effective communication Internal and external stakeholders should be considered in the CFP process Implementation and escalation procedures should be clearly defined CFPs should be reviewed on a regular basis to ensure relevance to the risks to which the firm is exposed In addition, simulations of the plan should be enacted to test coordination, decision-making, and operational execution ability (talk about breaking down silos, geographies, etc.)(talk about breaking down silos, geographies, etc.)

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18. References and publications on Liquidity Risk

19. Questions and Answers