Basis point sensitivity
Besides the VaR, other risk indicators are also important for measuring market risk. The basis
point value, 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 basis point value table below shows these
positions for each key currency.
In millions of euros
31-Dec-2013
Euro
0.6
US dollar
1.1
Australian dollar
-0.1
Other
-0.1
Total
1.5
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 reporting year.
Currency risk
Currency risk is the risk of changes in income or equity as a result of currency exchange rate
movements. In currency risk management, a distinction is made between positions in trading
books and positions in banking books. In the trading books, currency risk is part of market risk
and is controlled using Value at Risk and other limits, as are other market risks. Value at risk for
currency risk in the trading books stood at EUR 0.6 (0.8) million at 31 December 2013. In the
banking books, the only risk is translation risk related to non-euro net investments in foreign
entities and hybrid capital instruments that are not denominated in euros. To monitor and
manage the translation risk, Rabobank Group uses a dual-track approach to protect its capital
position. The hedge strategy is used to cover the risk associated with non-euro net investments
in foreign entities while protecting the capital ratios against the effects of currency exchange
rate movements wherever possible.
Operational risk
EDTF recommendation 31 and 32 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 and bear full responsibility for daily risk acceptance and 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.
81 High level of creditworthiness: risk management
