Indicators Liquidity risk and funding The interest rate risk position is adjusted by means of hedge transactions.The extent and timing of any hedging is dependent on the view on future interest rates and the expected movements in the statement of the financial position, among other things. Rabobank Group uses three indicators when managing, controlling and limiting interest rate risk: Basis Point Value (BPV), Equity at Risk (EatR) and Income at Risk (latR). These indicators measure the loss that might result from changes in interest rates.The BPV is the absolute loss of market value of equity in the event of a parallel increase of one basis point across the yield curve. The BPV did not exceed EUR 28 million during 2010. The EatR indicates the percentage decrease in the market value of equity in the event that there is a parallel increase in the yield curve of one percentage point. The EatR did not exceed 5.6% during the year under review. The latR represents, at a defined confidence level, the maximum loss of interest income over the next twelve months in the event of a sharp rise or fall in money market rates and capital market rates. The latR did not exceed EUR 118 million during 2010. The maximum values of these indicators were therefore well within their set limits during the year under review. Due to the low interest rate environment, the lower limit for the EatR has been temporarily reduced. In addition, economic capital is calculated and maintained for interest rate risk. Rabobank Group performs complementary scenario analyses each month to assess, among other things, its sensitivity to sharp increases and decreases in interest rates. Liquidity risk is the risk that a bank will not be able to fulfil all its payment and repayment obligations on time, as well as the risk that it will at some time be unable to fund increases in assets at a reasonable price, if at all. This situation might arise if clients or professional counterparties suddenly withdraw more funds than expected while, at the same time, expiring funding arrangements are not refinanced, the bank does not have sufficient cash resources, and no solution can be found in the form of selling or lending assets to or borrowing money from third parties. Increasing our cash resources and retaining the confidence of both professional market parties and retail clients have proved to be crucial in this respect. Management liquidity risk Rabobank Group has always recognised that liquidity risk is an important risk type. In keeping with the Basel principles, the policy is that long-term lending is financed by means of stable funding, being funds entrusted by customers and long-term funding from the professional markets. Liquidity risk management is based on three pillars. The first pillar sets strict limits on the maximum outgoing cash flows of the wholesale banking division. This ensures that excessive dependence on the professional market is avoided. To this end, among other things the incoming and outgoing cash flows expected over the next 12 months are calculated and reported on a daily basis. In addition, limits have been set on such outgoing cash flows for each currency and location. Detailed contingency plans have been drawn up in order to ensure the bank is prepared for potential crises. Under the second pillar, a large buffer of liquid assets is held. If necessary, these assets can be used to generate liquidity immediately by being sold directly on the market, by being used in repo transactions or by means of lending securities to central banks. Pending further regulatory tightening of the liquidity requirements, Rabobank Group built a liquidity portfolio with high-quality government paper. The buffer of liquid assets calculated on the basis of guidelines issued by the regulator stood at over EUR 138 billion at year-end 2010. The third pillar concerns limiting liquidity risk by pursuing a prudent funding policy that is designed to ensure the financing requirements of group entities are met at an acceptable cost. The diversification of funding sources, funding instruments and currencies plays an important role in this context. As part of this, bonds were issued in 15 different currencies in 2010.This prevents Rabobank Group from becoming overly dependent on a single source of funding. The active investor relations function also has an important role to play in this regard. 64 Annual Report 2010 Rabobank Group

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Annual Reports Rabobank | 2010 | | pagina 65