ING Direct 2011 Annual Report Download - page 234

Risk management continued
ING Bank
Problem Assets – Cover values**** including guarantees received**
31 December 2010
Outstandings* Mortgages*** Cash Guarantees** Other
Total Credit
Covers****
Retail
Residential Mortgages 4,026 4,975 4,975
Other Lending 671 154 154
Total Retail 4,697 5,129 5,129
Commercial
Financial Institutions 366 456 23 83
Corporates 8,542 2,761 23 343 882 4,009
Governments 1
Other 173 59 2 5 66
Total Commercial 9,082 2,824 23 401 910 4,158
Total 13,779 7,953 23 401 910 9,287
* Excluding intercompany positions
** Guarantees received can be additional to pledges and not necessarily replace collaterals
*** The used valuations methods for the underlying collaterals may vary per collateral
**** Credit covers are the sum of all existing covers. Excess cover amounts on specific loans cannot be put in place for loans without covers. Therefore, the
figures shown in the table should not be used for netting calculation purposes
ING BANK MARKET RISK
ING Bank Market Risk Management
Market risk is the risk that movements in market variables, such as interest rates, equity prices, foreign exchange rates, credit spreads and
real estate prices, negatively impact the bank’s earnings, market value or liquidity position. Market risk either arises through positions in
trading books or through the banking book positions. The trading positions are held for the purpose of benefiting from short-term price
movements, while the banking book positions are intended to be held in the long-term (or until maturity) or for the purpose of hedging
other banking book positions.
Governance
Within ING Bank, market risk (including liquidity risk) falls under the supervision of the ALCO function with ALCO Bank as the highest
approval authority. ALCO Bank determines the overall risk appetite for market risk. The ALCO function is regionally organised with the
exception of ING Direct, which has a separate ALCO. The business lines Retail Banking and Commercial Banking are represented within the
respective regional and local ALCO’s. The ALCO structure within ING Bank facilitates top-down risk management, limit setting and the
monitoring and control of market risk. This ensures a correct implementation of the ING Bank risk appetite.
The Market Risk Management department (MRM) is the designated independent department that is responsible for the design and
execution of the bank’s market risk management functions in support of the ALCO function. The MRM structure recognises that risk
taking and risk management to a large extent occurs at the regional/local level. Bottom-up reporting allows each management level to
fully assess the market risk relevant at the respective levels.
MRM is responsible for determining adequate policies and procedures for managing market risk and for monitoring the compliance with
these guidelines. An important element of the market risk management function is the assessment of market risk in new products and
businesses. Furthermore MRM maintains an adequate limit framework in line with ING Bank’s risk appetite. The businesses are responsible
for adhering to the limits that ultimately are approved by ALCO Bank. Limit breaches are reported to senior management on a timely basis
and the business is required to take the appropriate actions to reduce the risk position.
Model Disclosure: ING Bank Economic Capital for Market Risk
Economic Capital for market risk is the Economic Capital necessary to withstand unexpected value movements due to changes in market
variables. Economic Capital for market risk is calculated for exposures both in trading portfolios and non-trading portfolios and includes
real estate risk, foreign exchange rate risk, equity price risk, interest rate risk and model risks. Economic capital for market risk is calculated
using internally developed methodologies with a 99.95% confidence interval and a horizon of one year, which represents extreme events
and ING’s target rating.
For the trading and most of the non-trading portfolios (including equity investments), the actual VaR (measured at a 99% confidence
interval, a one day holding period and under the assumption of an expected value of zero) is taken as a starting point for the Economic
Capital calculations for market risk. To arrive at the Economic Capital for market risk, a simulation based model is used which includes
scaling to the required confidence interval and holding period. In determining this scaling factor, several other factors are also taken into
account like the occurrence of large market movements (events) and management interventions.
232 ING Group Annual Report 2011