9.2 Non-trading interest rate risk
Inhoudsopgave Bestuursverslag Corporate governance
Equity volatility;
Treasury spreads;
Inflation related products;
Tenor basis swap spreads;
Bond - CDS spread.
In each sensitivity stress scenario extreme shocks for one
particular risk factor category are applied. These shocks
generally represent up- and downward movements in the risk
factors. A book's sensitivity is examined daily by applying all
relevant sensitivity scenarios with an aim to report a maximum
negative result as exposure under a trading control. The size
of the shocks depends on, among other things: different
asset classes, sectors, regions and liquidity horizons. Liquidity
horizons vary between 10 and 120 days, depending on the
type of asset and risk factor. The liquidity horizon provides
an estimate of the amount of days it takes to liquidate
a position in the market or replace a hedging position in
times of stress. For less liquid treasuries, corporate bonds and
products with optionality the horizon is longer.
In addition to these sensitivity scenarios, Rabobank also uses
real historical and hypothetical scenarios to gain insight into
the impact of such scenarios on the profit or loss of the trading
book. In these stress scenarios multiple risk factor categories are
shocked at the same time.
On 31 December 2015 the event risk amounted to 108 well
within the set limit of 200. Event Risk is largely determined by
the tenor basis swap position, which historically has its origin in
client flow which related mainly to the hedging of Rabobank's
residual mortgage portfolio. At this moment, it comes from
non-client facing positions of a more strategic nature which are
classified as permitted proprietary trading activities outside the
United States under the Volcker Rule.
Table 52: Event risk
Event risk
2015-31 December
108
2015 - average
113
2015 - highest
132
2015 - lowest
99
Jaarrekening Rabobank Groep Jaarrekening Rabobank
Interest Rate Delta
The Interest Delta indicates how the value of positions changes
if the relevant yield curve shows a parallel increase by 1 basis
point.These positions are shown inTable 56 for each key
currency in the Rabobank portfolio.
Table 53: Interest Rate Delta
Interest Rate Delta
Euro
(1.2)
US dollar
(0.4)
British pound
0.1
Other
0.1
Total
(1.4)
Rabobank considers transforming amounts and maturities
of money as a major source of earnings and economic value.
Moreover, in meeting the needs of its clients it also offers
options and products with embedded options. Due to these
factors the bank is exposed to interest rate risk in the banking
environment. Interest rate risk is defined as the exposure
of the bank's financial condition to adverse movements in
interest rates. Interest rate risk in the banking environment may
arise from:
1. a maturity and repricing mismatch between assets and
liabilities (mismatch risk);
2. interest rate related options embedded in products that
might affect future cash flows (option risk);
3. possible changes in the shape of the yield curves (yield curve
risk); and
4. changes in the relationship between various yield
curves (basis risk).
An important driver of interest rate risk in the banking
environment is client behaviour.This factor even constitutes
the most important distinguishing factor between interest rate
risk in the banking environment and interest rate risk in the
trading environment. Any risk run by clients due to the fact that
their financial obligations increase as a result of movements in
interest rates does not affect Rabobank's exposure to interest
rate risk, but it may increase the bank's exposure to credit risk.
9.2.1 Non-trading interest rate risk framework
Rabobank accepts a certain level of interest rate risk in the
banking environment, because this can be a major source of
earnings and economic value, but at the same time it seeks
to avoid any material unexpected swings in earnings and
370 Rabobank Jaarverslag 2015
