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