Adjustments to the BIS II regulations
Economic capital
'An exceptionally interesting year, 2003'
Risk, returns and capital 53
The Basel Committee on banking supervision has reached the final
phase of completing far-reaching proposals for the restructuring of
capital adequacy regulations. Eventually, these proposals will need to
be translated into national regulations by the national supervisors - in
this case the Dutch Central Bank. The objective is to achieve a flexible
framework that is more closely in line with internal risk control measures
and that will result in a more sophisticated credit risk weighting.This
should lead to a definitive capital adequacy accord, BIS II, in mid-2004,
which is to be introduced at the end of 2006.Within the current capital
adequacy accord, BIS I, banks must meet the minimum capital adequacy
requirements set by the supervisory authority. With a generous equity
buffer of the highest Tier I quality, which is reflected in a Tier I ratio of at
least 10, Rabobank Group sets an even more rigid capital adequacy
requirement for itself. In 2003, the Tier I ratio was 10.8.This is a comfortable
buffer, as demonstrated by the new, far-reaching proposals under BIS II.
Given its traditionally low (credit) risk profile, the new capital adequacy
requirements for Rabobank are significantly lower than the current ones.
The accord on capital adequacy stipulates that banks must hold capital
to cover all risks they face. Rabobank Group uses the most advanced
statistical methods to determine the size of the economic capital to be
held.These methods analyse the unexpected losses (for which economic
capital must be held), assuming a specific degree of probability of the
actual occurrence of such losses. Rabobank Group wants to maintain
the highest rating (AAA).This rating implies that rating agencies consider
the probability of bankruptcy to be practically nil.That is why Rabobank
has set itself a higher target as regards the level of economic capital,for
a high rating requires a higher economic capital. Risk spreading plays an
important part in the calculation of that capital.The better the spread,
the less economic capital is required, for then there is less chance of
the various losses occurring simultaneously. Rabobank Group's total
economic capital for 2003 has been calculated at EUR 13.5 billion.
Work is being done to refine these calculations further, but it is already
abundantly clear that the level is comfortably under that of the available
tier capital of EUR 19.7 billion.This large buffer again underscores
Rabobank Group's solid position.
growth and professionalism of the whole- in tailored advice and in assisting directors/
sale banking activities. External parties and majority shareholders with business sales
advisers fortunately also know where to
find us. In that respect, the acquisition of
Rembrandt Mergers Acquisitions was a
good move for us. Rembrandt specialises
Cilian Jansen Verplanke, director of Rabo Participaties.
and expansion.They advise, we participate.
The perfect combination.'
