EDTF18
1 The DNB haircuts on external ABS and
internally held RMBS were adjusted
upwards. Since the beginning of 2014, the
new haircuts have to be used and had a
negative effect on the DNB liquidity
position of EUR 18 billion.
Risk management framework
Liquidity risk has long been recognized as a major type of risk by Rabobank. In line with CRR
(CRD IV), Rabobank's policy is aimed at financing long-term lending with stable funding, i.e.
funds entrusted by customers and long-term funding provided by the professional markets.
Responsibility for the day-to-day management of the liquidity position, the raising of
professional funding on the money and capital market, and the management of the structural
position lies with the Treasury department.
Liquidity risk management is based on three pillars. The first pillar sets strict limits for the
maximum cash outflow of wholesale banking. This includes daily measurement and reporting
of expected cash inflows and outflows for the next twelve months. Limits have been set for
these cash outflows, per currency and per location. Detailed plans (the contingency funding
plans) have been drawn up for contingency funding to ensure the bank is prepared for potential
crisis situations. Periodic operational tests are performed for these plans. An operational test of
the Rabobank contingency funding plan took place in 2014.
An extensive buffer of liquid assets is maintained as a second pillar. In addition to credit balances
held at central banks, these assets can be used to be pledged to central banks, in repo trans
actions or to be sold directly in the market as to generate liquidity immediately. The size of the
liquidity buffer is attuned to the risk Rabobank is exposed to in its balance sheet. In the past few
years, Rabobank has (internally) securitised a portion of the loan portfolio, which can therefore
be pledged to the central bank and accordingly acts as an additional liquidity buffer. As these
are internal securitisations for liquidity purposes only, they are not shown in the balance sheet
for financial reporting purposes but they do count towards the liquidity buffer in place.
The third pillar for limiting liquidity risk is a prudent funding policy, in order to be able to
provide funding to Group entities at acceptable costs. Key success factors are the diversification
of funding sources and currencies, the flexibility of the funding instruments used and an active
investor relations role. This helps to ensure that Rabobank does not become excessively
dependent on any single source of funding.
Risk measurement
Comfortable liquidity position
Rabobank's liquidity buffer remained robust in 2014. The total liquidity buffer at 31 December
2014, measured in High Quality Liquid Assets (HQLA), was EUR 80 (84) billion. The decrease (in
absolute terms) is a consequence of a decline in the investments in government bonds.
Measured in terms of the Liquidity Coverage Ratio (LCR) of 144% (126%) and Net Stable Funding
Ratio (NSFR) of 115% (114%), the position remained comfortably above current or future limits.
Moreover, the available liquidity exceeded the minimum DNB requirement by an average of
34%. In 2013, based on previous guidelines1 this was still 41%.
99 Rock-solid bank: risk management
