9.1 Trading market risk
Inhoudsopgave Bestuursverslag Corporate governance
A large part of the structural interest rate and currency risks
arising from the banking activities are transferred through
internal derivative transactions to the trading environment.
Within the trading environment these risks are for the most part
hedged in the market.
EDTF22 It is not possible to make a direct link between the
items on the bank's balance sheet and the various
figures for market risk.This is because the bank's balance sheet
only contains transactions with third parties. The published
market risk figures for the trading books are based on both
transactions with third parties and transactions with internal
parties in the banking environment.The same applies to the
disclosed interest rate and currency risk figures for the banking
books, which are based on both transactions with third parties
and transactions with internal parties in the trading
environment.
Movements in markets affecting interest rates, equities, credit
spreads, currencies and commodities generate market risk as
they have an impact on the value of the trading portfolios.
These portfolios are the result of the bank's trading activities,
which are undertaken for clients or for the bank's own balance
sheet management by the departments Markets and Treasury.
Market risk in the trading environment is monitored daily
within the market risk framework. Rabobank's market risk is
relatively small as evidenced by the low Risk Weighted Exposure
Amounts (RWEA) compared to that of credit risk and, to a lesser
extent, operational risk.
Table 48: Value at Risk
Value at Risk by group entity
31 December
2015
31 December
2014
Markets
4.4
2.8
Treasury
1.0
1.1
Other
0.0
0.0
Diversification
(0.3)
(0.7)
Total
5.1
3.2
9.1.1 Trading market risk framework
The market risk framework is put in place to measure, monitor
and manage market risk in the trading books. In addition to that
it is used to calculate Regulatory Capital (RC) for market risk.
An important part of the framework is an appropriate system
of limits and trading controls. The Executive Board determines
Jaarrekening Rabobank Groep Jaarrekening Rabobank
Rabobank's risk appetite and its related limits on an annual
basis.These limits are translated into limits and trading
controls at book level. The risk position is reported to senior
management on a daily basis and discussed in the various risk
management committees each month.
On consolidated level, the risk appetite is defined for VaR,
event risk and Interest Rate Delta. In addition to the VaR limits,
an extensive system of other limits and trading controls for
each book is in place. These controls include tenor basis swap
risk, commodity and equity cash delta, interest rate (IR) delta
bucket limits, notional limits and FX exposure limits, to ensure
that risks that offset each other or are not covered by the VaR
framework are not overlooked. In order to weigh the risk of
'abnormal' market conditions, the effects of certain extreme
events (event risk) are calculated daily. These extreme events
can be historical events or plausible hypothetical scenarios
affecting the positions in the trading portfolios.
Internal VaR model
The internal VaR model forms a key part of Rabobank's market
risk framework. Rabobank has opted to apply a VaR model
based on historical simulation for which one year of historical
data is used. The major benefit of a VaR model based on
historical simulation is that no assumptions need to be made
in terms of distribution of possible value changes of the various
risk factors. A drawback is that a certain period of historical
market movements needs to be selected, which may affect the
level of the calculated VaR. Further to the requirements of the
supervisory authority and after internal research, Rabobank has
opted for the most recent period of one year.
For internal risk management purposes, Rabobank has opted
for a confidence level of 97.5% and a time horizon of one day.
The VaR used in the calculation of the capital requirement for
market risk uses a confidence interval of 99% and a holding
period of 10 days as prescribed by the regulator.
Figure 5 shows the development of market risk during 2015,
as measured by the VaR with a one day holding period and
97.5% confidence level. In 2015, the VaR fluctuated between
2.5 and 8.7, the average being 4.9. On 31 December 2015, the
consolidated VaR was 5.1. This relatively limited position was
well within the internal VaR limit of 40. Also during the year, the
VaR was well within the limit. VaR movements were limited and
have mainly been driven by volatility in the financial markets,
especially during the first half of 2015.
366 Rabobank Jaarverslag 2015
