Economic capital as an internal capital requirement
RAROC4 Economic capital (in billions of euros)
2010
2009
31-Dec-10
31-Dec-09
Domestic retail banking
23.8%
15.2%
8.1
7.6
Wholesale banking and international
retail banking
10.1%
8.8%
7.4
7.6
Asset management
0.8
0.8
Leasing
18.3%
10.4%
1.1
1.1
4 The RAROC ratio was calculated
Real estate
1.6
1.5
by linking up net profit to the average
Other
3.2
3.4
economic capital for the year.
Rabobank Group
12.5%
10.3%
22.3
22.0
Over and above the external capital requirement, Rabobank Group uses an internal capital
requirement based on an economic capital framework.The key difference with the external
capital requirement is that an allowance is made for all material risks and for Rabobank's
creditworthiness. The latter is reflected in the economic capital framework that starts from a
higher confidence level (99.99%) than that used for the external capital requirement (99.90%).
A broad spectrum of risks is measured consistently to gain a more complete understanding
of risks and to allow a more rational weighing of risk and return. A series of models has been
developed to weigh the risks incurred by Rabobank Group. These risks are credit, transfer,
operational, business, interest rate and market risk. Market risk breaks down into trading book,
private equity, currency, property and residual value risk. A separate risk model is used for the
participation in Eureko.
Economic capital saw a 3% rise to EUR 22.3 (22.0) billion in 2010 due primarily to an increase
in economic capital for interest rate risk and credit risk. The interest rate risk grew due to an
increase in net interest positions and a levelling-off of the yield curve. The rise for credit risk
was attributable to an increase in receivables from counterparties. Total economic capital is
ample below the available qualifying capital of EUR 35.7 (33.0) billion. This sizeable buffer
underscores the solidity of Rabobank Group.
Economic capital
by group entity
at year-end 2010
Domestic retail banking 37%
Wholesale banking
and international
retail banking
Real estate
Leasing
Asset management
Other 14%
21
Financial developments
Economic capital
by category at year-end 2010
Credit and transfer risk
Operational risk and
business risk
Interest rate and
market risk
Other risks
63%
16%
