ING Direct 2013 Annual Report Download - page 308

Risk management continued ING Bank
Liquidity risk management framework
ING’s liquidity risk management framework incorporates all relevant risk principles with regard to the daily and on-going management of
funding and liquidity risk. The framework contains the following key elements:
• Liquidity risk appetite: This is set by Management Board Bank in line with ING’s complexity, business mix and liquidity risk profile and is
reviewed on an annual basis by ALCO Bank and forms part of the input of business units in their medium term business plans. The
defined risk appetite is allocated to the regional ALCO’s.
• Funding: The Bank Treasury function will set and update the funding strategy and funding planning, taking into account diversification
in sources and tenor of funding.
• Intraday Liquidity Management: Bank Treasury actively manages its short term liquidity positions and risks to meet payment and
settlement obligations on a timely basis under both normal and stressed conditions.
• Collateral Position Management: Bank Treasury actively manages the liquidity risk of its collateral positions to meet ING’s collateral
needs, and resources, under both normal and stressed conditions and in accordance with all internal and regulatory rules.
• Liquidity buffers: ALCO Bank ensures that sufficient liquidity is maintained, in accordance with Bank- and regulatory rules and
standards, including a buffer of unencumbered, high quality liquid assets, to withstand stress events, such as those involving the loss or
impairment of both unsecured and secured funding sources.
• Liquidity risk transfer and pricing: ALCO Bank sets and maintains a Funds Transfer Pricing (FTP) framework that optimises Bank-wide
funding and liquidity risk management, whereby all business units must transfer their structural funding and liquidity risks to Bank
Treasury whilst managing their own customer behaviour liquidity risk costs.
• Stress testing: ALCO ensures that liquidity stress tests are planned, designed, conducted and reviewed, to identify sources of potential
liquidity strain, to determine how these can and will be addressed and to ensure that current exposures remain within the established
liquidity risk tolerance.
• Contingency Funding Plan: ALCO ensures the design, regular test and maintenance of formal Contingency Funding planning, setting
out the strategies for addressing liquidity shortfalls in emergency situations, outlining procedures to manage these situations,
establishing clear lines of responsibility, and articulating clear implementation and escalation procedures.
Implementation of the framework
Liquidity risk appetite
ING’s liquidity risk appetite is expressed in a set of limits to manage the level of liquidity risk ING is willing to take in the pursuit of its
strategic objectives. These limits are embedded in risk appetite statements (RAS) which reflect three pillars of addressing risk:
• Structural sources of risk:
– Limits on liquidity mismatches
– Limits on exposures to short term professional money markets
– Defining target Loan-to-Deposit ratios
• Levels of liquidity:
– Compliance with regulatory requirements
– Adequate levels related to defined stress scenarios
• Funding diversification:
– Limiting or reducing dependency on single providers
– Concentration limits per funding sources
Based on the above, ING Bank has defined the following funding and liquidity risk management risk appetite statements:
• The structural mismatch in expected liquidity tenors of ING Bank’s assets and liabilities per significant currency is manageable.
• Home/host regulatory liquidity limits should be pro-actively complied with.
• The time-to-survive in a funding stress situation should extend over multiple quarters.
• Funding of all longer-term assets and investments should be done by stable and longer-term liabilities.
• Geographical dependencies with respect to intra-group funding are to be limited or decreased.
• Diversification should be in place of funding profile, across funds providers, instrument types, geographic markets, tenors and currencies.
Also refer to Note 48 in which ‘Assets by contractual maturity’ are shown.
The risk appetite statements are also directly linked to liquidity stress testing.
Funding
In detailing the activities of the bank regarding utilisation of professional market funding sources, the following key principles apply:
• Maintaining adequate market access in both normal and stressed but operable market conditions.
• Managing risk by adhering to internally and externally imposed risk limits and balance sheet ratios.
• Optimising the cost of funding under the principles above.
With respect to funding sources, ING Bank manages its balance sheet prudently, whereby short-term funding is primarily utilised for short-
term assets. The bank aims to fund all longer term assets and investments by stable and longer term liabilities. In the third quarter of 2013,
the uncertainty with regard to the US debt ceiling outcome gave rise to increased monitoring of the USD positions. Monitoring and control
of this funding is effectuated through a dedicated USD funding and liquidity risk framework which includes limits and measures in case of
contingencies. ING Bank reviews its funding plan on at least a quarterly basis, assessing market developments and funding requirements.
306 ING Group Annual Report 2013