ING Direct 2013 Annual Report Download - page 307

Risk management continued ING Bank
Credit spread sensitivities per risk class and sector at year-end
amounts in thousands of euros 2013 2012
Credit Spread (CSO1 (1))Corporate
Financial
Institutions Corporate
Financial
Institutions
Risk classes
1(AAA) –4 –135 –4 –124
2–4 (AA) –66 –74 –38 –65
5–7 (A) –58 –105 –42 –247
8–10 (BBB) –28 –48 23 –68
11–13 (BB) –26 –37 –40 –25
14–16 (B) –17 –9 –12 –4
17–22 (CCC and Problem Grade) –42 –3 –47 –2
Not rated –2 0–1 –16
Total –243 –411 –161 –551
(1) Credit Spread Sensitivity (CS01) measures the impact on value of a 1 basis point increase in credit spreads.
FUNDING AND LIQUIDITY RISK
Introduction
Funding and liquidity risk is the risk that ING Bank or one of its subsidiaries cannot meet its financial liabilities when they come due, at
reasonable cost and in a timely manner.
ING Bank incorporates funding and liquidity management in its business strategy. In order to optimise its funding and liquidity risk
management ING Bank has developed a funding and liquidity risk framework aimed at maximising liquidity access and minimising funding
risks and costs. The main objective of ING’s funding and liquidity risk management is to maintain sufficient liquidity to ensure safe and
sound operations under normal market circumstances and in times of crisis.
Funding and liquidity risk includes three types of risk, two under normal, and one under stress conditions:
1. Business as usual situation:
• Structural funding & liquidity risk: The potential negative impact on an organisation’s income or cash position due to mismatches
between expected liquidity tenors of assets and liabilities
• Customer behaviour funding & liquidity risk: The potential negative impact on an organisation’s income or cash position due to
liquidity options embedded in assets and liabilities that include a client behaviour risk
2. Stress situation:
• Stress funding & liquidity risk: The risk an organisation may become unable to meet its financial obligations when due, because
insufficient cash is available or cannot be generated in time at a reasonable costs by attracting new unsecured funding or rolling over
existing funding, or selling / repo-ing assets, potentially resulting in default.
Liquidity risk can materialise both through trading and non-trading positions.
Governance
Within ING Bank, next to the Management Board Bank, staff (Risk and Finance) departments, Capital Management and the Bank Treasury
function are responsible for managing funding and liquidity risk.
Bank Treasury (BT) is a 1st line function. Its main funding and liquidity responsibilities are to manage ING’s funding gap and ING’s
regulatory liquidity position. Bank Treasury is ING’s primary contact to the market for long and short term funding, with exception of
capital and securitisation transactions which are under the responsibility of the Capital Management function and the execution of some
specific structured funding products which are executed by Financial Markets under a mandate that provides strict guidance around
pricing, volumes, optionalities and tenors.
The Management Board Bank defines the funding and liquidity strategy, target funding and liquidity position and the risk appetite based
on recommendations from Bank Treasury, Capital Management, Market Risk Management and Finance.
Liquidity risk management within ING Bank falls under the supervision of the ALCO function, with ALCO Bank as the highest approval
authority overseeing the execution of the overall strategy set by the Board.
ALCO Bank determines the liquidity risk (limit) framework and appetite after which this is cascaded down in the organisation under the
responsibility of the regional and local ALCOs. ING Bank’s liquidity risk framework is based on the three lines of defence concept, whereby
risk principles are implemented, monitored and controlled in conjunction with both first and second line functions within the Bank.
The identification of liquidity risks is primarily a responsibility of the 1st line business management function.
The 2nd line Market Risk Management function is responsible for defining the governance with regard to funding and liquidity
management. Next to this, Market Risk Management sets the standards for the funding and liquidity risk approach (identify, assess,
control, monitor and report) and determines adequate policies and procedures for managing and monitoring liquidity risk in view of
compliance with guidelines and limits.
305ING 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