Inhoudsopgave Voorwoord Bestuursverslag Corporate governance
Consolidated Financial Statements Company Financial Statements Pillar 3
As part of its interest rate risk policy, Rabobank uses the
following two key indicators for managing and controlling
interest rate risk:
Equity at risk, duration of equity; and
Income at risk; the sensitivity of net interest income to
gradual increases or decreases in interest rates during the
coming 12 months.
3.7 Market risk in the trading environment
Market Risk arises from the risk of losses on trading book
positions affected by movements in interest rates, equities,
credit spreads, currencies and commodities.These movements
have an impact on the value of the trading portfolios and
could lead to losses. Risk positions acquired from clients can
either be redistributed to other clients or managed through risk
transformation (hedging).The trading desks are also acting as
a market-maker for secondary markets (by providing liquidity
and pricing) in interest rate derivatives and debt, including
Rabobank Bonds and Rabobank Certificates.
Market risk in the trading environment is monitored daily
within the market risk framework, which is put in place to
measure, monitor and manage market risk in the trading books.
An important part of the framework is an appropriate system of
limits and trading controls.The relevant risk appetite limits are
translated into limits and trading controls at book level and are
monitored on a daily basis by the market risk departments.
Due to Rabobank's strategy of client risk redistribution, risk
transformation (hedging) and the low secondary market
activity, the real market risk exposure of the trading portfolio is
well within the risk appetite boundaries. If limits are breached,
remedial actions will be stipulated which decrease the chance
of large actual losses. The risk position is reported to senior
management and discussed in the various risk management
committees each month.
3.8 Liquidity risk
Liquidity risk is the risk that the bank will not be able to meet
all of its payment and repayment obligations on time, as well
as the risk that the bank will not be able to fund increases in
assets ata reasonable price, if at all. This could happen if, for
instance, customers or professional counterparties suddenly
withdraw more funds than expected which cannot be absorbed
by the bank's cash resources, by selling or pledging assets in
the market or by borrowing funds from third parties. Rabobank
considers an adequate liquidity position and retaining the
confidence of both professional market parties and retail
customers to be crucial in ensuring unimpeded access to the
public money and capital markets.
The liquidity risk policy focuses on financing assets using stable
funding, i.e., funds entrusted by customers and long-term
wholesale funding. Liquidity risk is managed on the basis of
three pillars.The first of these sets strict limits for the maximum
outgoing cash flows within the wholesale banking business.
Among other things, Rabobank measures and reports on a daily
basis what incoming and outgoing cash flows can be expected
during the next twelve months. Limits have been set for these
outgoing cash flows, including for each currency and each
location. Detailed plans (the contingency funding plans) have
been drawn up for contingency funding to ensure the bank is
prepared for potential crisis situations. Periodic operational tests
are performed for these plans.
The second pillar is used to maintain a substantial high-quality
buffer of liquid assets. In addition to credit balances held at
central banks, these assets can be used to be pledged to central
banks, in repo transactions, or to be sold directly in the market
to generate liquidity immediately. The size of the liquidity buffer
is attuned to the risk Rabobank is exposed to in its balance
sheet. In addition Rabobank has securitised a portion of the
mortgage portfolio internally, which means it can be pledged
to the central bank, thereby serving as an additional liquidity
buffer. Since this concerns retained securitisations, it is not
reflected in the consolidated balance sheet.
The third pillar for managing liquidity risk consists of a good
credit rating, high capital levels and prudent funding policies.
Rabobank takes various measures to avoid becoming overly
dependent on a single source of funding. These include
balanced diversification of financing sources with respect to
maturity, currencies, investors, geography and markets, a high
degree of unsecured funding and therefore limited asset
encumbrance, and an active and consistent investor-relations
policy play a major role.
furthermore, scenario analyses are performed each month
to determine the potential consequences of a wide range of
stress scenarios.The analyses cover market-specific scenarios,
Rabobank-specific scenarios and a combination of both.
Monthly reports on the Group's overall liquidity position
are submitted to the Dutch Central Bank.These reports are
prepared in accordance with the guidelines drawn up by this
supervisory authority.
3.9 Operational risk
Rabobank defines operational risk as the risk of losses being
incurred as a result of inadequate or dysfunctional internal
processes, people and systems or as a result of external
trends and developments, including legal and reputational
risks. In measuring and managing operational risk, Rabobank
operates within the parameters of the most advanced Basel II
approach, the Advanced Measurement Approach, and follows
the 'three lines of defence model'as prescribed by the EBA.
The bank's operational risk policy is based on the principle
that the primary responsibility for managing operational risk
lies with the first line and that this must be integrated into
276 Rabobank Jaarverslag 2016