Contents Management report Corporate governance Consolidated financial statements Financial statements Pillar 3
In addition to the VaR; there are several other key risk indicators.
The interest rate delta indicates how the value of the trading
book positions changes if the yield curve moves in parallel with
a 1 basis point increase. The table below shows these positions
for each major currency.
Interest rate delta
in millions of euros
2015
2014
Euro
(1.2)
0.6
US dollar
(0.4)
(0.3)
British pound
0.1
0.2
Other
0.1
0.0
Total
(1.4)
0.5
4.8 Operational risk
Rabobank defines operational risk as the risk of losses incurred
as a result of inadequate or dysfunctional internal processes,
people and systems, or as a result of external trends and
developments. Potential legal risks and reputational risks are
considered in the assessment and management of operational
risk.
In measuring and managing operational risks, Rabobank Group
operates within the parameters of the most advanced Basel
II ap-proach, the Advanced Measurement Approach. For the
management of operational risks, Rabobank follows the'three
lines of defence model'as prescribed by the EBA.
The bank's operational risk policy is based on the principle
that the primary responsibility for managing operational risk
lies with the first line and that this must be integrated into
the strategic and day-to-day decision-making processes.
The purpose of operational risk management is to identify,
measure, mitigate and monitor various types of operational
risks.The risk quantification process supports the management
responsible for prioritising the actions to be undertaken and the
allocation of people and resources.
Within Rabobank Group, the departments involved in the
primary processes of the bank form the 'first line of defence'.
They are fully responsible for day-to-day risk acceptance and
for integrated risk management and mitigation according to
the established risk appetite. The risk management functions
within the group entities and within Risk Management together
constitute the 'second line of defence'. The risk management
functions have a monitoring role with regard to risks and test
'the first line of defence'with respect to the way in which they
manage risks. In addition, they report on the risk profile to the
management and to the Executive Board, independently from
the first line. Internal audits form the 'third line of defence'.
At group level, the Non-Financial Risk Committee (NFRC) is
responsible for formulating policy and setting the parameters.
In addition, Risk Management also reports each quarter to the
NFRC on changes in operational risks at group level. A number
of risk management committees have been established within
the group's entities. Their responsibilities include monitoring
operational risks (including system continuity risks, IT security
risks and fraud risks) of the relevant entity.
The yearly risk management cycle consists of, among other
things, a group-wide Risk Self Assessment, in which the most
important operational risks are inventoried and, if the risks fall
outside the risk appetite, for which mitigating measures are
identified based on scenario analyses with senior managers of
the entire Rabobank Group, in order to gain insight into the risk
profile of the group.
4.9 Fair value of financial assets and liabilities
The following table shows the fair value of financial instruments,
recognised at amortised cost on the basis of the valuation
methods and assumptions detailed below.This table is included
because not all financial instruments are recognised at fair value
in the balance sheet. Fair value represents the price that would
have been received for the sale of an asset or that would have
been paid in order to transfer a liability in a standard transaction
conducted between market participants on the valuation date.
For fair value measurement Rabobank assumes that the
transaction to sell the asset or transfer the liability is conducted
in the key market for the asset or liability. Alternatively, in the
most advantageous market if there is no key market.
Market prices are not available for a large number of the
financial assets and liabilities that Rabobank holds or issues.
For financial instruments for which no market prices are
available, the fair values shown in the following table have
been estimated using the present value or the results of other
estimation and valuation methods, based on the market
conditions on the reporting date.The values produced
using these methods are highly sensitive to the underlying
assumptions used for the amounts as well as for the timing of
future cash flows, discount rates and possible market illiquidity.
The following methods and assumptions have been used.
Cash and balances at central banks. The fair value of cash
and balances at central banks is assumed to be almost equal to
their carrying amount.This assumption is used for highly liquid
investments and also for the short-term component of all other
financial assets and liabilities.
Loans and advances to banks. Loans and advances to banks
also includes interbank placings and items to be collected.
The fair values of floating rate placings and overnight deposits
are their carrying amounts.The estimated fair value of fixed-
interest deposits is based on the present value of the cash flows,
calculated on the basis of appropriate money market interest
rates for debts with comparable credit risks and terms to maturity.
204 Rabobank Annual Report 2015
