9.2 Non-trading Interest Rate Risk Inhoudsopgave Voorwoord Bestuursverslag Corporate governance Rabobank uses sensitivity stress scenarios for the following risk factor categories: Interest rates; Interest rate volatility; Interest rate curve rotation; Credit spreads; Commodities; Commodity volatility; FX rates; FX volatility; Equities; 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 P&L of the trading book. In these stress scenarios multiple risk factor categories are shocked at the same time. On 31 December 2016 the event risk amounted to EUR 105 million well within the set limit. Rabobank's event risk is largely determined by the tenor basis swap position, which 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. Consolidated Financial Statements Company Financial Statements Pillar 3 Table 47: Event Risk. Event risk 2016-31 December 105 2016-average 125 2016 - highest 159 2016 - lowest 103 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 in Table 48 for each key currency in the Rabobank portfolio as per 31 December 2016. Table 48: Interest Rate Delta. Interest Rate Delta Euro 0.1 US dollar 0.1 British pound 0.1 Other 0.0 Total 0.3 Interest rate risk in the banking environment arises principally from (1) mismatches between the repricing period of assets and liabilities and (2) embedded optionality in client products. Within the banking environment a distinction is made between 4 types of interest rate risk: 1. Parallel interest rate risk - possible losses due to changes in the level of the yield curve; 2. Non-parallel interest rate risk - possible losses due to changes in the shape of the yield curve; 3. Option risk - possible losses caused by (embedded) options; 4. Basis risk - possible losses due to changes in the relationship between different yield curves. 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. The modelling of customer behaviour is therefore one of the core elements of the interest rate risk framework. There are behavioural models in place for mortgage prepayments, savings accounts and current accounts. Assumptions used in our models are not disclosed as a these are considered proprietary. Movements in interest rates may also affect the creditworthiness of customers. FHigher interest rates might for example lead to higher borrowing costs and, hence, have a negative impact 356 Rabobank Jaarverslag 2016

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Jaarverslagen Rabobank | 2016 | | pagina 357