ING Direct 2008 Annual Report Download - page 191

Risk measurement ING Bank and ING Insurance
The overall ING Group risk appetite is translated into specific limits which are cascaded down into the organisation, e.g.
Credit risk limits for bank and insurance business;•
Market Value at Risk limits for the insurance business;•
ALM/Value at Risk limits for bank operations;•
Mortality and concentration limits for insurance operations.•
The following risk disclosures provide more insight into how the risk measures used by the risk organisation are linked to the Group
risk dashboard and Economic Capital.
ING BANK
ING Bank is engaged in selling a broad range of products. The financial risks that arise from selling these products are managed by
the Corporate Credit and Market Risk departments. Operational risks are managed by the Corporate Operational Risk department.
ING BANK RISK PROFILE
Economic Capital ING Bank
One of the main risk management tools for ING Bank is Economic Capital which is used to determine the amount of capital that a
transaction or business unit requires to support the economic risks it faces. ING Bank implemented Economic Capital for internal use in
1998. Since 1999 ING Bank has been disclosing Economic Capital information externally. The tables below provide ING Bank’s Economic
Capital by risk type and business line. Figures shown reflect all diversification effects within ING Bank, including risk reduction between
the risk categories. Diversification effects that arise as a result of combining ING Bank and ING Insurance activities are not taken into
account. Business risk is included in the other risks category to cover unexpected losses that may arise as a result of changes in volumes,
margins and costs.
The ING Bank Economic Capital model is described in more detail in the Model Disclosure section.
The following table provides the Economic Capital break down by risk category including diversification benefits proportionally allocated
to the risk types:
Economic Capital (Bank diversified only) by risk category
2008 2007
Credit risk (including Transfer risk) 8,686 7,503
Market risk 10,349 7,407
Other risks (1) 3,372 3,017
Total banking operations 22,407 17,927
(1) Other risks includes operational risk as well as business risk.
The overall increase in Economic Capital is mainly due to the inclusion of the core equity investments in market risk Economic Capital
Bank, whereas previously it was taken as an add-on at Group level. Furthermore the increased Economic Capital can be explained by
credit migrations, increased market volatility and model enhancements.
The following table provides the Economic Capital break down by business line including diversification benefits proportionally allocated
to the risk types:
Economic Capital (Bank diversified only) by Line of Business
2008 2007
Wholesale Banking 9,849 8,646
Retail Banking 6,169 5,360
ING Direct 4,050 2,831
Corporate Line Bank (1) 2,339 1,090
Total banking operations 22,407 17,927
(1) Corporate Line includes funding activities at ING Bank level, internal transactions between business units and the Corporate Line, and is managed by
Capital Management.
The growth of the Economic Capital figure for the Wholesale Banking business line can be mainly explained by the credit migrations,
market volatility and model enhancements. The Retail Banking Economic Capital figure increased predominantly due to the finalisation of
the acquisition of Oyak Bank in the risk systems. The material increase in ING Direct is due to credit migration, model enhancements and
increased market volatility.
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ING Group Annual Report 2008