4.8 Operational Risk 4.9 Fair Value of Financial Assets and Liabilities About this Report Chairman's Foreword Corporate Management Report Appendices Governance Consolidated Financial Company Financial Statements Statements Customer savings are an example. Under contract, these are payable on demand. Experience has shown this to be very stable source of long-term financing for Rabobank to have at its disposal. The regulations of the supervisory authority also factor this in. With a Liquidity Coverage Ratio (LCR) of 135% as per December 31, 2018 (2017:123%), Rabobank complies with the minimum 100% requirement as set by the Dutch Central Bank (DNB). The liquidity requirements to meet payments under financial guarantees are considerably lower than the amount of the liabilities because Rabobankdoes not generally expect thatthird parties to such arrangements will draw funds. The total outstanding amount in contractual obligations to provide credit does not necessarily represent the future cash resource needs of Rabobank because many of these obligations will lapse or terminate without financing being required. Operational Risk (OpRisk) is an integral part of doing business. Operational Risk Management (ORM) within Rabobank is aimed at having a healthy balance between the exposure to these risks and managing these risks. The objective of ORM is to identify, measure, mitigate and monitor operational risk, and promote risk awareness and a healthy risk culture within Rabobank. Risk quantification and awareness helps management to set priorities in their actions and allocate people and resources thus enabling the bank to deliver full customer focus. Within Rabobank, operational risk is defined as the risk of losses resulting from inadequate or failed internal processes, people and systems or from external events, including potential reputational consequences. Rabobank has developed a Risk and Control Framework (RCF) which is mandatory for all business units (including subsidiaries) and central support functions within the organization. The RCF ensures that risks due to inadequate or failing processes, people, systems and/or external events are managed within the accepted risk levels. To manage operational risks effectively, an integrated, forward-looking view by the first Line of Defense risk owner (client-facing departments) and Support Functions is in place. In addition, quarterly In Control meetings within the first line are in place to manage operational risks. Rabobank performs a structured and integrated risk analysis to integrally manage its risk and control framework. Performing this risk assessment across all entities helps to ensure Rabobank Group's risk management system is sound and in compliance with regulatory requirements. Risk Control Activities (RCAs) are included in the following process steps: Risk Identification Risk Assessment Risk Response Risk Monitoring Risk Reporting Risk Finding and Action Management Risk Incident Management Uniform and consistent Risk Control Activities result in an effective and efficient way of managing various types of operational risks and a good balance between risks and controls within the organization. Hence RCF improves the efficiency and effectiveness of daily business and helps to become a better learning organization. For fair value measurement Rabobank assumes that the transaction to sell the asset or transfer the liability is conducted in the principal market for the asset or liability, or in the most advantageous market if no principal market exists. 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 and for the timing of future cash flows, discount rates and possible market illiquidity. The following methods and assumptions have been used. Cash and Cash Equivalents. The fair value of cash and cash equivalents is assumed to be almost equal to their carrying amount. This assumption is used for highly liquid investments and alsoforthe short-term component of all other financial assets and liabilities. Loans and Advances to Credit Institutions. Loans and advances to credit institutions also includes interbank placings and items to be collected. The fair values of floating rate placings, that are repriced regularly and do not vary significantly in terms of credit risk, 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 based Annual Report 2018 - Consolidated Financial Statements 164

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Annual Reports Rabobank | 2018 | | pagina 166