Basis point sensitivity
Breakdown of Value at Risk
in millions of euros
31 December 2011
Credit spread
7.3
Currency
1.3
Equities
5.2
Interest rates
15.8
Commodities
0.3
Diversification
-13.3
Total
16.5
Besides Value at Risk, other risk indicators are also important for measuring market risk. BPV,
for instance, is a measure of the change in the value of positions if there is a parallel increase in
the yield curve of 1 basis point. The table below shows these positions for each key currency.
in millions of euros
31 December 2011
Euro
-0.7
US dollar
-0.0
Pound Sterling
-0.0
Australian dollar
-0.1
Japanese yen
-0.1
Other
-0.2
The event risk, which is measured by performing sensitivity analyses and stress tests, was also
well within the set limit of EUR 200 million in the year under review.
Operational risk
Rabobank defines operational risk as the risk of losses caused by inadequate or failing internal
processes, people or systems or by external events. In assessing and addressing operational
risk, allowance is made also for potential legal and reputational risks. Rabobank Group
operates within the frameworks of the Basel II Advanced Measurement Approach for
measuring and managing operational risk.
The operational risk policy is based on the principle that the primary responsibility for managing
operational risk rests with the group entities and should be part of the strategic and day-to-day
decision-making process. The objective of operational risk management is to identify, measure,
mitigate and monitor operational risk. Risk quantification helps management in charge to set
priorities in their actions and to allocate people and resources.
To implement this, Rabobank uses the three-lines-of-defence model. The group entities are
the first line of defence. They bear full responsibility for daily risk acceptance, comprehensive
risk management and risk mitigation within the set risk appetite. The second line of defence
is formed by the risk management functions at entity level and Group Risk Management.
The group entities' risk management functions advise on risks and challenge the first line of
defence on how to manage risks at entity level. Group Risk Management is responsible for the
group-wide risk policy and challenging the group entities and local risk management functions
on their risk management. The internal audit functions at group and entity level make up the
third line of defence.
The Operational Risk Committee is responsible for defining operational risk policy and its
parameters at group level. In addition, Group Risk Management reports on developments in
group-wide operational risks once every quarter. Within the group entities, risk management
committees have been established to identify, manage and monitor, among other things, the
operational risks, including business continuity and fraud risks, of the relevant entity.
52
Annual Report 2011 Rabobank Group
