9. Market risk Market risk is the risk that the bank's earnings and/or economic 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 Voorwoord Bestuursverslag Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3 Section Description Key risk indicators Monitoring 9.1 Market risk trading Market risk arising from the bank's trading activities. Rabobank's trading Value at Risk, event risk, Daily environment activities are customer driven or for the purpose of the bank's own balance interest rate delta sheet management. 9.2 Interest rate risk banking Interest rate risk arising from the bank's activities not related to trading. This Equity at Risk, Income at Weekly/Monthly environment occurs mainly within the retail banking business as a result of the difference Risk, basis point sensitivity in interest rate fixing periods between assets and liabilities and implicit options in various customer products. 9.3 Currency risk banking Currency risk arising from the bank's activities not related to trading. This None Monthly environment mainly concerns translation risk resulting from capital invested in foreign operations. Within the trading environment, the most significant types of market risk are: interest rate risk (including basis risk), credit spread risk and currency risk. 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 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. 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 (1) mismatches between the repricing period of assets and liabilities and (2) embedded optionality in client products. 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 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. 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 possibleto 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. 351 9. Market risk

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Jaarverslagen Rabobank | 2016 | | pagina 352