In 2008, the Value at Risk fluctuated between EUR 31 million and EUR 58 million, with an average of
EUR 39 million.This means that, at a confidence level of 97.5% and under normal circumstances,
expected losses on any one day amounted to a maximum of EUR 58 million. Under this calculation
method, the amount of the Value at Risk is derived from both historical market trends and the positions
taken. Although positions were reduced, the extreme conditions on financial markets in the latter half of
2008 resulted in a substantial rise in the Value at Risk.
Value at Risk Z0
in millions of euros in 2008 60
20
10.
0_
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
The Value at Risk can be broken down into a number of components, of which credit spreads and interest
rates are the most important. Particularly the positions sensitive to changes in credit spreads have shown
negative value trends since the onset of the financial crisis. 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 2008, the consolidated Value at Risk was EUR 45.1 million.
Breakdown of Value at Risk
(in millions of euros) 31-Dec-08
Credit spread 33.8
Currency 0.6
Equities 1.9
Interest rate27.8
Diversification19.0
Total45.1
Operational risk
Operational risk affects all organisations. In recent years it has become ever clearer that operational
risks can lead to large losses, such as in the case of Société Générale and the Madoff case in 2008.
Rabobank Group has decided to place the responsibility for operational risk management for the
entire Rabobank Group with Group Risk Management, which sets the policies and the frameworks for all
the entities within the Rabobank Group. The responsibility for managing specific operational risks rests
with the senior management of the individual Group entities, for the risks differ considerably per entity
and the risks should be controlled as close to the source as possible. Group Risk Management ensures
that the frameworks are adhered to and that for the Rabobank Group as a whole the control mechanisms
are transparent and easy to understand.
A model - which meets the requirements of the Advanced Measurement Approach and has been
endorsed by the Dutch Central Bank - is used to determine solvency requirements regarding operational
risks. This model takes account of realised losses as well as the potential consequences of specific
scenarios. Rabobank Group follows a conservative approach in this respect. Further, the calculation of
the solvency requirement takes account of risk control quality.
Currency risk
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,
in common with other market risks. In the banking books, there is only the translation risk on non-euro
net investments in foreign entities and issues of hybrid capital instruments not denominated in euro.
63
Report of the Executive Board
