10. Liquidity risk EDTF18 Liquidity risk is the risk that the bank will not be able to meet all of its payment obligations on time, as well as the risk that the bank will not be able to fund increases in assets at a reasonable price.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. Maintaining a comfortable liquidity position and retaining the confidence of both professional market parties and retail customers have proved to be crucial, ensuring unimpeded access to the public money and capital markets for Rabobank. 7 0.7 Liquidity risk management framework 70.2 Risk measurement Inhoudsopgave Voorwoord Bestuursverslag Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3 Liquidity risk is defined as a major risk type at Rabobank, which has to be managed carefully. Rabobank's policy is to finance client assets using stable funding, that is, funds entrusted by customers and long-term wholesale funding. Responsibility for the day-to-day management of the liquidity position, the raising of professional funding on the money and capital markets, and the management of the structural position lies within theTreasury department. Liquidity risk management is based on three pillars.The first sets strict limits for the maximum outgoing cash flows for different maturities within the wholesale banking business. 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 limits and controls per currency and 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 on these plans. The latest test took place at the end of 2016. The second pillar is to maintain a substantial high-quality buffer of liquid assets. Besides cash balances held at central banks, liquid securities can be used to pledge to central banks, in repo transactions or be sold directly in the market to generate liquidity immediately. The size and quality of the liquidity buffer is aligned with the risk Rabobank is exposed to resulting from its balance sheet. In addition, Rabobank has securitised a portion of the mortgage loan portfolio internally, which is pledged to the central bank, thereby serving as an additional liquidity buffer. Since this concerns a retained securitisation, it is not reflected on the consolidated balance sheet. The third pillar for managing liquidity risk is to have a solid credit rating, high capital levels and a prudent funding policy. Rabobank takes various measures to avoid becoming overly dependent on a single source of funding. These measures include balanced diversification of funding 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. Liquidity position edtf 18 Rabobank's liquidity buffer remained robust in 2016. The total liquidity buffer at 31 December 2016 measured in 'High Quality Liquid Assets' (HQLA) was 103 (2015: 98) billion.The increase (in absolute terms) is a consequence of the increase of cash deposited at central banks.The decrease in level 1 securities can be explained by a decrease in reverse repo transactions with level 1 securities underlying. The group consolidated liquidity buffer does take into account transfer or inconvertibility restrictions. The European Commission Delegated Act 'Liquidity Coverage Requirement' (DA LCR) became a regulatory requirement as of October 1st 2015. With a Liquidity Coverage Ratio of 130% as per 31 December 2016, Rabobank complies with the minimum 100% requirement as set by the Dutch Central Bank (DNB). During 2016 Rabobank complied with the 100% requirement. The 'Net Stable Funding Ratio' (NSFR) as monitored by Basel, is 119% (2015:116%), which is comfortably above the future requirement of 100%. Moreover, the available liquidity exceeded the minimum DNB requirement by an average of 32% (2015: 23%). 359 10. Liquidity risk

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Jaarverslagen Rabobank | 2016 | | pagina 360