Inhoudsopgave Bestuursverslag Corporate governance
The day-to-day focus of RM FM revolves around risk assessment
and recommendation, primarily with regard to credit and
market risks and surveillance of Markets and Treasury activities.
The department also takes the lead in working with these
departments to agree on the overall risk parameters for each
separate business area. Structurally, the department operates
through four regional hubs - Utrecht, London, New York and
Hong Kong.
In addition, RM FM incorporates an Advisory team, tasked
with maintaining and further developing a robust integrated
risk management framework for the financial markets
business of Rabobank. It supports RM FM, the Markets and
Treasury departments and senior management by providing
consolidated global risk reporting, and maintenance of policies
and risk methodologies. The team is also involved in providing
regulatory reports, supporting the Bank in regulatory initiatives
like Asset Quality Review, EBA stress testing, Volcker, Swap
dealer registration and liaising with the regulators on relevant
topics.
Credit analysis
From a counterparty credit risk policy and credit review
perspective the main counterparty groups are: Banks,
Non-Banks Financial Institutions including central
counterparties (CCP), sovereigns and corporates. In general
the parameters to determine a derivative limit (which covers
both derivatives and security finance transactions) are the
counterparty rating, the close-out netting documentation,
collateral documentation, product restrictions and regulatory
requirements. These parameters, amongst others, form the
input to a derivative limit amount with a specified tenor.
Credit risk measurement
The credit risk that relates to a derivative product does not
remain static over time due to the movement of underlying
market factors. In order to address the impact of these
changes in market factors Rabobank measures Potential Future
Exposure (PFE) on derivative financial products on a confidence
level of 97.5%. Rabobank measures credit exposure as the
replacement cost at given time points over the life of the
transaction under the assumption that market rates move
adversely. Rabobank uses a Monte Carlo simulation approach
for calculating Potential Future Exposure (PFE) for the majority
of the portfolio. For a few smaller portfolios an add-on approach
is applied.The same Monte Carlo simulation is also the basis
of the Internal Model Method (IMM) used to calculate EAD
for regulatory and economic capital calculations. Rabobank
received DNB approval to use IMM to calculate regulatory
capital since 2011.
Jaarrekening Rabobank Groep Jaarrekening Rabobank
In the Monte Carlo approach the market risk factors (interest
and foreign exchange rates, credit spreads, equity spots and
commodity futures) influencing the value of the derivatives
contract are simulated forward in time based on a suitably
chosen stochastic process for that risk factor. The parameters
of this process are calibrated based on historical market data
(up to eight years of history when available and an even longer
history for interest rate mean reversion parameters). The latest
daily close of market values form the starting point of the
simulation. Based on the simulated values, trades are repriced
(full revaluation) and the position towards the counterparty is
determined, including where allowed netting and margining.
Back testing of the simulations is performed on an annual basis.
The exposure relating to a transaction or portfolio of
transactions is shown in Rabobank exposure monitoring
systems on a gross basis unless there is confidence that the
counterparty and jurisdiction domicile is one where netting is
legally enforceable. The exposure of a portfolio of transactions
can be calculated on a net basis if Rabobank has entered into
a bilateral close out netting agreement and the counterparty
is domiciled in a netting friendly jurisdiction. When a close
out netting agreement is in place, an additional collateral
agreement can reduce the counterparty credit risk, which is
taken into account into the PFE calculation. The outcome of the
collateralized exposure calculation is dependent on the agreed
collateral agreement parameters and the current exposure.
Where there is an executed Credit Support Annex (CSA) and
confidence in its effectiveness (internal and external counsel
opinion is sought), this is taken into account for exposure
measurement. However, also netting with a CSA still generates
exposures. For derivatives with daily margining a minimum
10 day Margin Period of Risk (MPOR) is assumed, for securities
finance netting sets with daily margining the MPOR is assumed
to be a minimum of 5 days. The minimum MPOR can be
increased in case of illiquid collateral or derivatives, two or more
disputes that occurred within a particular timeframe (2 quarters)
or a netting set contains more than 5000 trades (CCPs are
excluded from the 5000 trades cut-off). The increase is only
applied in the regulatory run (increasing effect in exposures)
and ignored in the day to day PFE calculations. The monitoring
of exposure generated by derivative products covers nearly
the complete group. This capability enables regular and
on-going management information to be available to senior
management. The underlying models are yearly back tested to
test the performance of the underlying models. Any observed
inefficiencies in the stochastic models will be taken into
account in the recalibration.
347 6. Credit Risk
