ING Direct 2013 Annual Report Download - page 257

Risk management continued ING Bank
Process
The stress testing process of ING Bank consists of several stages, which are summarised in the diagram.
Step 4. Execution of mitigating actions
STSC, BF&RC &
MBB approval
Step 3. Data processing & proposal mitigating actions
Step 2. Scenario parameter setting
Step 1. Risk assessment & scenario selection
STSC & BF&RC
approval
Step 1. Risk assessment & scenario selection
ING Bank formally determines its main risks based on the current economic situation, political and regulatory developments and
developments in portfolios on an annual basis. Senior management, business representatives and risk specialists are involved in this
process. Based on the risk assessment, relevant scenarios to be evaluated in the remainder of the year are selected. The results of the risk
assessment and scenario selection are discussed and approved in the Stress Testing Steering Committee (STSC). All stakeholders are
represented in the STSC, such as representatives of the different Corporate Risk departments, Capital Management, Finance and the
Economic Bureau. The STSC submits the results of the risk assessment and scenario selection to the BF&RC for formal approval.
Step 2. Scenario parameter setting
After the determination of the high level scenarios in the previous step, they need to be worked out in greater detail. Scope, assumptions
and input parameters such as GDP growth, unemployment rates, interest rates and real estate price changes are defined for the countries
involved in the exercise. The parameters are discussed and approved in the STSC and subsequently in the BF&RC.
Step 3. Data processing & proposal mitigating actions
When the scenario parameters have been finalised, the impact of the scenario on the solvency and liquidity position is determined. Based
on the scenario values for the relevant macro-economic and market variables, the impact on amongst others P&L, revaluation reserves,
RWA and liquidity buffers is calculated. These outcomes are subsequently used to calculate the evolution of relevant solvency and liquidity
ratios, such as the Core Tier 1 ratio, the leverage ratio and the CRD II liquidity buffer.
As for the previous steps, the calculated impacts of the scenario are first discussed and approved in the STSC, and then in the BF&RC.
Depending on the outcomes of the stress test, and the possibly identified vulnerabilities, mitigating actions may be proposed. Approval of
these mitigating actions takes place in the MBB.
Step 4. Execution of mitigating actions
After the MBB has approved the mitigating actions, they need to be executed. Mitigating actions may include sales or transfers of assets,
reductions of risk limits, start-up or strengthening of marketing campaigns and lobbying campaigns with regulators or other authorities.
GPD Growth
Unemployment
Real estate prices
Interest rates
Credit spreads
Equity prices
Savings outflow
Prof. Funding availability
Downgrades
Haircuts
Etc.
Net interest income
Trading income
Other income
Credit risk costs
CDA / DVA
Expenses
Revaluation reserves
Risk Weighted Assets
Liquid asset buffer
Inflow / outflow
Etc.
Core Tier 1 ratio
Leverage ratio
CRD II liquidity buffer
Etc.
Methodology
For the calculation of the impact of the scenarios on P&L, RWA, revaluation reserves, etc., detailed and comprehensive models are used. In
these models, statistical analysis is combined with expert opinion to make sure that the results adequately reflect the scenario
assumptions. The methodologies are granular and portfolio-specific and use different macro-economic and market variables as input
variables. The stress testing models are subject to a thorough review by the Model Validation department.
255ING Group Annual Report 2013
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