Breakdown of Value at Risk
Basis point sensitivity
Operational risk
Value at Risk can be broken down into a number of components, the most important of which
are changes in interest rates and credit spreads. Opposite positions in different books offset
each other to a certain degree, resulting in a diversification benefit and reducing the total risk.
At year-end 2012, consolidated Value at Risk was EUR 7.6 (16.5) million.
in millions of euros
31 December 2012
Credit spread 1.1
Currency 0.8
Equities 1.8
Interest rates 8.1
Commodities 0.5
Diversification -4.7
Total 7.6
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 2012
Euro 0.0
US dollar 0.6
Pound Sterling 0.2
Australian dollar 0.0
Japanese yen 0.1
Other -0.1
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.
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 as regards
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 and parcel 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 the
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 calling 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.
61 High level of creditworthiness: risk management
