ING Direct 2013 Annual Report Download - page 305

Risk management continued ING Bank
the market risk under these extreme conditions. Event risk is based on historical as well as hypothetical extreme scenarios. The result is an
estimate of the profit and loss caused by a potential event and its world-wide impact for ING Commercial Banking. The event risk number
for the ING Commercial Banking trading activity is generated on a weekly basis. Like VaR, event risk is limited by ALCO Bank.
ING Bank’s event risk policy is based on a large set of possible stress scenarios per risk type (fixed income, equity, foreign exchange, credit
and related derivative markets). For example, for equity products we assume both a crisis scenario (prices decreasing) as well as a bull
scenario (prices increasing). Stress parameters are set per country. Scenarios are calculated based on events happening independently,
jointly by region, or in all countries simultaneously. This way, for each risk type, a large set of scenarios is calculated. The worst scenarios
per market are combined across markets by assessing both independent events per market, and worst events happening in all markets at
the same time.
Other trading controls
VaR and Event Risk limits are the most important limits to control the trading portfolios. Additionally, limits have been set on SVaR and IRC.
Furthermore, ING Bank uses a variety of other controls to supplement these limits. Position and sensitivity limits are used to prevent large
concentrations in specific issuers, sectors or countries. In addition to this, other risk limits are set with respect to the activities in complex
derivatives trading. The market risk of these products is controlled by product specific limits and constraints.
Risk profile
The following chart shows the development of the overnight VaR under a 99% confidence interval and a 1-day horizon versus daily
trading profits and losses. The overnight VaR is presented for the ING Commercial Banking trading portfolio for 2012 and 2013.
Jan 12
date
Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Dec 13
-30
-20
-10
0
10
20
Consolidated trading VaR ING Commercial Banking 2012–2013
In EUR millions
Value at Risk P&L
The risk figures in the table below only relate to the CAD2 trading books for which the internal model approach is applied.
Risk Measures for Internal Model Approach Portfolios (1)
Minimum Maximum Average Year end
2013 2012 2013 2012 2013 2012 2013 2012
Interest rate 3413 21 710 74
Equity 23895544
Foreign exchange 11663322
Credit spread 22463433
Diversification (1) –9 –9 –7 –7
Total VaR 5517 28 913 97
Stressed VaR (10-day, 99%) 38 56 110 171 66 100 52 89
Incremental Risk Charge (1-year, 99.9%) 280 244 487 451 351 344 438 291
(1) The total VaR for the columns Minimum and Maximum cannot be calculated by taking the sum of the individual components since the observations for both
the individual markets as well as total VaR may occur on different dates.
303ING 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