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Contents Foreword Management report Corporate governance Consolidated Financial Statements Company Financial Statements Pillar 3
As Table 44 shows, the stressed VaR can be broken down into
a number of components, of which changes in interest rates
and credit spreads are the most important. Since positions
in different books off-set each other to a certain degree, this
results in a large diversification benefit. At 31 December 2015,
the consolidated 60 days averaged stressed VaR based on
a 10-day holding period and a 99% confidence interval was 23.
Table 44: Stressed VaR (10day, 99%).
Stressed VaR (10day, 99%)
in millions of euros
Interest
Credit
Foreign
currencies
Shares
Commodity
Diversification
Total
2016 - 31 December
50
4
2
(9)
48
2016 - average
54
5
2
1
1
n/a
52
2016 - highest
71
11
5
6
2
n/a
69
2016 - lowest
30
3
n/a
23
Incremental Risk Charge
The Incremental Risk Charge (IRC) captures credit risk in the
trading portfolio that is not captured in the VaR. This risk arises
from the fact that the issuers of bonds, the reference name of
Credit Default Swaps or other issuer risk related products that
Rabobank holds in its trading portfolio might default or suffer
from a rating migration. This can result in a loss for Rabobank.
To calculate IRC, the current issuer risk portfolio is used as
a starting point. Rabobank uses the regulatory floor of 3 months
as liquidity horizon, (i.e. it is assumed that positions cannot be
sold within three months in stressed circumstances).
A Monte Carlo simulation with input parameters (EADs
based on MTM, PD, LGD per issuer type, migration losses and
correlation) results in possible 4 outcomes of losses due to
defaults and migrations in the portfolio within three months.
Under the constant risk assumption Rabobank adds the
outcomes of four 3-month profit and losses to arrive at a one
year loss. The resulting 99.9% worst observation from the profit
and loss distribution represents the IRC Regulatory Capital.
As Table 45 shows, the mean, highest and the lowest IRC
amount during 2016.
Table 45: Incremental Risk Charge (99.9%).
Regulatory Capital
For portfolios that have been categorised as trading book, own
funds requirements are being calculated within the Market
Risk Solvency Framework. The VaR, stressed VaR, IRC and Risk
Weightings for Securitisations (RWS) are used in the calculation
of Regulatory Capital for market risk in the trading portfolios.
Rabobank has the approval to use the Internal Method
Approach (IMA) and specific risk. The VaR, stressed VaR and
IRC are calculated using the Internal Method Approach (IMA),
while the Standardised Approach is used for the RWS.
This methodology is based on the standardised approach,
already used for the banking book, which applies a fixed risk
weight to a position based on rating, seniority, granularity and
product type (securitisation or re-securitisation). All banks for
which IMA is approved are required to use the Standardised
Approach of RWS. A confidence interval of 99% and a holding
period of 10 days is used for the VaR and stressed VaR in the
calculation of the Regulatory Capital of the trading portfolios.
In addition to the capital charges mentioned above
Standardised Approach Regulatory Capital charges are
calculated for the commodity trading positions in the Trade
Commodity Finance (TCF) department and for FX positions.
The capital requirement for market risk amounts to
EUR 311 million. Table 46 shows a breakdown of the Regulatory
Capital requirement for market risk. On the 31 December 2016,
VaR and stressed VaR have a multiplier of 3 as per methodology.
Incremental Risk Charge (99.9°%)
Total
2016 - 31 December
56
2016 - average
58
2016 - highest
107
2016 - lowest
42
350 Rabobank Annual Report 2016