9. Market risk
Market risk is the risk that the bank's earnings and/or economie value may be negatively affected by
changes in interest rates or market prices. Exposure to a certain degree of market risk is inherent in
banking and creates the opportunity to realise profit and value. In the management and monitoring
of market risk, a distinction is made between market risk in the trading environment and market risk in
the banking environment.The various market risks are discussed in the sections below.
Inhoudsopgave Bestuursverslag Corporate governance Jaarrekening Rabobank Groep Jaarrekening Rabobank
Section
9.1 Market risk trading environment
9.2 Interest rate risk banking
environment
9.3 Currency risk banking environment
Description
Market risk arising from the bank's trading activities.
Rabobank's trading activities are customer-focused
or for the purpose of the bank's own balance sheet
management and take place within the departments
Markets and Treasury.
Interest rate risk arising from the bank's activities
not related to trading. Occurs mainly within the
retail banking business as a result of the difference
in interest rate fixing periods between assets and
liabilities and implicit options in various customer
products.
Currency risk arising from the bank's activities not
related to trading.This mainly concerns translation risk
resulting from capital invested in foreign operations.
Key risk indicators
Value at Risk, event risk,
interest rate delta
Equity at Risk, Income at Risk,
basis point sensitivity
Value at Risk
Monitoring
Daily
Weekly/Monthly
Monthly
Within the trading environment, the most significant types
of market risk are: interest rate risk (including basis risk),
credit spread risk and currency risk. Market risk in the trading
environment is managed and monitored on a daily basis within
the trading market risk framework. This framework contains
all derivative books, as well as the loan syndication books, the
short term funding books, securities finance repo books and
the bond trading books. A prudent limit and control framework
is in place. Rabobank's trading activities are client driven or for
the purpose of the bank's own balance sheet management and
are managed within the Markets and theTreasury departments.
Within the banking environment the most significant type of
market risk is interest rate risk. Rabobank is mainly exposed to
interest rate risk in the banking environment as a result of the
structural maturity and repricing mismatch between assets
and liabilities, i.e. mismatches resulting from differences in end
dates and/or interest rate reset dates in financial contracts,
and because of options and products with embedded options
that are offered to clients. Rabobank is also exposed to
currency risk in the banking environment.This currency risk is
mainly translation risk on capital invested in foreign activities.
Other non-trading currency risks are mostly hedged.
Where market risk in the trading environment is managed
within the trading market risk framework, market risk in the
banking environment is managed and monitored within the
Asset Liability Management (ALM) framework. The ALM
framework is applied to portfolios that imply structural non-
trading market risk.The most important kinds of books in this
framework are banking books, investment books and capital
books. Banking books contain financial products and related
derivatives to these products which are held to generate
(a balanced growth of) net interest income. Investment books
comprise financial instruments that are held for strategic
reasons, i.e. they are destined to be permanently linked to the
bank's operations, inter alia for controlling interest rate risk,
solvency and liquidity risk. Capital books incorporate financial
instruments that are funded with the bank's own capital.
The exposures covered by the ALM framework are far more
stable than the exposures in the trading market risk framework.
Therefore, they are managed and monitored on a weekly and/
or monthly basis.
365 9. Market risk
