ING Direct 2011 Annual Report Download - page 245

Risk management continued
ING Bank
With respect to funding sources, ING Bank aims to fund its own originated assets (loans) by an equal amount of own originated liabilities
(deposits), translated into an LtD target of below 1.2. Ultimo 2011 the LtD ratio (excluding securities at amortised costs and IABF receivable)
equals 1.14. In 2011, uncertainty with regard to economic developments in both Europe and USA, led to US MM Funds being more
restrictive in funding European counterparties. As ING Bank manages its balance sheet prudently, whereby short-term funding is primarily
utilised for short-term assets, a decrease of these type of funding sources is manageable. The table below shows the funding mix.
ING Bank Funding Mix
2011 2010
Funding type
Retail deposits 42% 46%
Corporate & other deposits 20% 19%
Interbank (incl. central bank) 9% 8%
Lending/repurchase agreement 7% 7%
Public debt 19% 17%
Subordinated debt 3% 3%
Total 100% 100%
The funding mix remained well diversified and according to targets set. Deposits accounted for 63% of the total funding mix.
Tactical liquidity risk
Liquidity risk which is resulting from short-term cash and collateral positions is managed in the risk framework from a tactical liquidity risk
perspective. The day-to-day management of the overall short-term liquidity risk of ING Bank is delegated to Financial Markets Amsterdam,
while regional and local Financial Markets departments manage liquidity in their respective regions and locations. Within Financial
Markets, the focus is on the daily and intraday cash and collateral positions and the policy is to manage and sufficiently spread day-to-day
funding requirements.
Contingency liquidity risk
Contingency liquidity risk specifically relates to the organisation and planning for liquidity management in time of stress. Within ING Bank,
for contingency purposes, a specific crisis team – consisting of key Board Members, representatives from Staff Departments (e.g. Risk and
Capital Management) and Treasuries – is responsible for liquidity management in times of crisis. Throughout the organisation adequate
and up-to-date contingency funding plans are in place to enable senior management to act effectively and efficiently in times of crisis.
Contingency funding plans address both temporary and long-term liquidity disruptions, triggered by either a general market event or an
ING Bank specific event.
New developments
All financial institutions have been confronted with a large number of new regulatory requirements. In 2011 ING Bank updated its
framework for funding and liquidity risk management so that it provides for an integral approach of liquidity risk management and
complies with the changed regulatory rules (CRDII, ILAAP). The framework contains, among others, the annual setting of a funding and
liquidity risk appetite related to the ING Bank strategy, a continuous cycle of identification, assessment, control, monitoring and reporting
of funding and liquidity risk, a policy covering all legal and regulatory rules, crisis planning and stress testing. The framework will be
implemented in 2012.
ING BANK OPERATIONAL RISK
Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from
external events. It includes the related risk of reputation loss, as well as legal risk whereas strategic risks are not included. Effective
operational risk management leads to more stable business processes (including IT systems) and lower costs. Generic mandatory controls
are described in the ORM policy house.
Clear and accessible policies and minimum standards are embedded in ING Bank business processes in all business lines. An infrastructure
is in place to enable management to track incidents and operational risk issues. A comprehensive system of internal controls creates an
environment of continuous improvement in managing operational risk. ING Bank uses this knowledge (including lessons learned from
incidents) to improve the control of key risks.
Governance
At all levels in the organisation Non-Financial Risk Committees (NFRC’s) are established that identify, measure and monitor the operational,
compliance and legal risks of the region or business unit with appropriate quality of coverage (granularity) and to ensure that appropriate
management action is taken by the responsible line managers at the appropriate level of granularity. NFRC’s, chaired by the CEO of the
entity, steer the risk management activities of the first and second line of defence in their entities.
1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information
243ING Group Annual Report 2011