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Risk limits for various business lines and divisions were determined based on three factors:

1. The expected performance of a business unit and its risk/return evaluation. High risk and high return with higher expected performance will have a higher risk threshold.

2. The risk capacity required to support a business line. A business line with a high risk capacity requirement will have a high risk limit.

3. A firm’s business model and adjustments. Risk appetite limits in this case could be higher or lower depending on the nature and riskiness of the business model and subsequent adjustments. Procedures were in place to deal with situations arising when a business line or a region exceeded the relevant risk limit (i.e., excesses or an increase in frequency of excesses).