Operational risk
Currency risk
15
10
5
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
As the table shows, the Value at Risk for the trading portfolios can be broken down into a
number of components, The value of the trading portfolios is mainly sensitive to changes in
credit spreads, interest rates and equity prices, From the onset of the crisis in the financial
markets in August 2007, particularly the positions sensitive to changes in credit spreads have
shown negative value trends, Since opposite positions of different books offset each other to
a certain degree, this results in a diversification benefit that reduces the total risk.
At 31 December 2007, the consolidated Value at Risk was EUR 30,9 million, This is a relatively
limited position, as is also evident from the fact that only a small part of total economic
capital is held for market risks from the trading activities,
Breakdown of Value at Risk
(in millions of euros)
31-Dec-07
Credit spread 28,4
Currency 0,3
Equities
5,3
Interest rate
16,4
Diversification-19,5.
Total
30,9
The basis for the self-developed and DNB-approved model is formed by the bank's own loss
data, plus data from an external database and scenario-based potential losses,
In organisational terms, Rabobank Group has decided to place the responsibility for
operational risk management as close to the source as possible, Group Risk Management
provides frameworks for and supervision of the requirement that each entity within
Rabobank Group has its own, adequate risk management organisation and practises an
acceptable risk profile, A reward system links the quality of risk management in practical
situations and an entity's capital to be held to cover operational risks,
Currency risk is the risk of changes in income or in equity as a result of currency exchange
movements, In currency risk management, a distinction is made between positions in
trading books and in banking books, In the trading books, currency risk is part of market risk
and is controlled using Value at Risk limits, as are other market risks, In the banking books,
there is only the translation risk on non-euro net investments in foreign entities and issues of
Trust Preferred Securities not denominated in euros,
To monitor and control the translation risk, Rabobank Group uses an interrelated two-track
approach to protect Rabobank Group's capital position against currency exchange rate
movements, On the one hand, the hedging strategy hedges the non-euro net investments in
foreign entities, while on the other hand it immunises the capital ratios against the effects of
