n
Operational risk
Risk type
61 Rabobank Group Annual Report 2005
Organisation and risk management: risk management
In the banking world, operational risk is classified as a non-financial risk.
It concerns the risk of losses resulting from failure of internal processes,
people or systems or from external events. The imminent adoption of the
Basel II accord has focused the attention on transparency and control of
operational risk, as, starting 2008, banks must hold capital for operational
risks. If a bank has identified its operational risks and demonstrably
manages them effectively, it can be expected that fewer losses will occur
and that less capital is required to cover them. Rabobank has developed
a model to calculate the capital to be held for operational risks in such a
way that it is aligned with the current risk profile of Rabobank Group as
a whole as well as that of each individual business unit.
Specifically for operational risk management, Rabobank Group has stated
that it is targeting the highest ambition level in the Basel II accord: the
Advanced Measurement Approach. Rabobank Group aims thereby to
demonstrate that it has risk management high on its agenda and that
its Triple A rating is more than deserved. The use of the Advanced
Measurement Approach makes Rabobank Group's control structure
more transparent and the co-ordination at Group level creates benefits
in the fields of knowledge building and sharing. The establishment, by
Group Risk Management, of policy frameworks and standards and align
ment of the control organisation with these frameworks contributes
substantially to Rabobank Group's 'being in control' in the area of risk
management.
Value at Risk at year-end 2005
in EUR millions
25
20
15
10
5
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
in EUR millions
At year-end 2005
Credit spread
19.2
Foreign currency
0.2
Equities
2.2
Interest rate
3.1
Diversification
-2.6
Total Value at Risk
22.1
