Inhoudsopgave Bestuursverslag Corporate governance
Additionally to introducing Monte Carlo simulation to the
calculation of PFE, an internal stress testing framework has
been designed in order to determine the size of counterparty
credit risk exposures under more severe market circumstances.
Stress testing of counterparty credit risk is a regulatory
requirement under the IMM approach. As part of the designed
stress testing framework, the wrong-way risk part of stress
testing will be addressed for all counterparties by calibrating
the parameters on a stressed period with respect to our
counterparties. Next to the quantitative wrong-way risk analyses
also qualitative analysis, e.g. based on the risk factor stress
scenarios and an analysis of the counterparty's exposure profile,
are performed in order to obtain additional insight into the
general wrong-way risk towards counterparties.
The IMM model has also been extended with a separate Credit
Value Adjustment (CVA) capital model.This model is based on
the advanced CVA Risk methodology where the credit spreads
are shocked with a 10 day liquidity horizon to calculate CVA risk.
The multilateral development banks, pension funds, non-NFC+
corporate, internal trades and sovereign counterparties are
excluded for CVA RC/EC.
For accounting, Rabobank calculates a CVA per derivative
transactions named Bilateral CVA (BCVA). In line with IFRS 13,
BCVA is an adjustment to cover expected credit losses. The BCVA
calculation is based on the expected exposure to counterparties,
taking into account collateral and netting benefits, as well as
on the expected default probability for the credit rating of
the counterparties. Expected default probabilities are based
on Credit Default Swap.The scoping for BCVA is based on
accounting requirements (IFRS 13) and the scoping of CVA
risk in based on regulatory requirement (Basel III). All external
counterparties are taken into account.
Credit risk mitigation
Derivatives
Rabobank uses a wide range of credit mitigation techniques to
reduce the credit risk in the derivatives books. Our portfolio of
derivative counterparties is consistently skewed towards higher
credit quality names reducing the likelihood of counterparty
failure. The principal form of credit mitigation is close out
netting and the use of collateral agreements. Rabobank has
a strong preference for the International Swaps and Derivatives
Association (ISDA) and the CSA for derivative portfolios.
The setting of the main parameters of a collateral agreement
are geared to a low or zero threshold, daily margining, and
acceptable collateral being cash or highly rated government/
supra national debt paper (cash and AA- or better rated
government bonds).
Jaarrekening Rabobank Groep Jaarrekening Rabobank
In total Rabobank has around 646 collateral agreements which
cover all of our major bank and non-bank financial institution
trading counterparties, of which just under 336 CSAs were
active with underlying exposure and/or collateral at year end
2015.The Collateral Operations team ensures that margin
calls are made in a timely fashion in accordance with the
terms of the collateral agreement. Excluding Spot FX, based
on positive mark to market (MTM) values around 92% of non-
cleared derivative trades fall under CSA including 93% of our
non-cleared fixed income derivatives and 100% of our equity
derivatives.
For all derivative documentation it is important to have
a clean netting/collateral opinion in place and to have the
documentation reviewed on an annual basis by the legal
department. In the derivative exposure calculations only
derivative documentation that is governed by a clean netting/
collateral opinion can be used. Additionally, Rabobank executes
a number of other market standard legal agreements with its
counterparties to reduce risk.The described policy enforces that
only in specific circumstances Rabobank will trade derivatives
without employing an internationally recognized derivatives
master agreement which in principal must be supported by
a clean legal and netting opinion for each Rabobank and
counterparty jurisdiction with which we contemplate trading.
By volume of trades and notional amount the most important is
the ISDA master agreement for derivatives. Master agreements
permit the netting of obligations generated by all the derivative
transactions covered by the agreement if a counterparty
should default. Positive and negative balances are off-set to
minimize exposure and to create a single net claim against the
counterparty.
Rabobank also uses a number of other derivative risk mitigation
techniques to limit exposure or the tenor of specific trades,
e.g. break clauses or MTM resets. Mandatory breaks and
reset clauses should only be executed with professional
counterparties and should fit into the generic product and
documentation requirements.
The liquidity impact of a Rabobank downgrade for the OTC
derivatives is reported on a monthly basis. A further Rabobank
downgrade has a limited liquidity impact. This is further
mitigated since Rabobank has in certain transactions the
option to novate the transaction which would limit the liquidity
outflow. As per December 2015 the impact of one notch
downgrade of Rabobank credit rating for OTC derivative is
around 80.
348 Rabobank Jaarverslag 2015
