ING Direct 2015 Annual Report Download - page 159

Contents
Who we are
Report of the
Management
Board
Corporate
Governance
Consolidated
annual accounts
Parent company
annual accounts
Other
information
Additional
information
Notes to the Consolidated annual accounts of ING Bank - continued
Types of stress tests
Within ING Bank, different types of stress tests are performed. The most comprehensive type of stress tests are the firm-wide scenario
analyses, which involve setting scenario assumptions for the relevant macro-economic and market variables in all countries where ING
Bank is active. These assumptions are usually complemented by a narrative that provides background for the scenario. In addition to
firm-wide scenario analyses, ING Bank also executes scenario analyses for a specific country or asset class. Furthermore, sensitivity
analyses are performed, which focus on stressing one or more relevant risk drivers; usually without an underlying scenario narrative.
The 1-in-10-year stress scenario used in the risk appetite framework is an example of a sensitivity analysis. Finally, ING Bank also
performs reverse stress tests, which aim to determine the circumstances which would lead to a pre-defined severe adverse outcome.
Process
The stress testing process of ING Bank consists of several stages, which are summarised in below diagram.
Step 1. Risk assessment & scenario selection
ING Bank formally determines its main risks on an annual basis based on the current economic situation, political and regulatory
developments and developments in portfolios. 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 endorsed 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 Global Research organisation. The STSC submits the results of the risk assessment and scenario selection to the BF&RC for
endorsement.
Step 2. Scenario parameter setting
After 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 endorsed 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 are calculated. These outcomes are subsequently used to calculate the evolution of relevant
solvency and liquidity ratios, such as the CET1 ratio, the leverage ratio and the regulatory liquidity buffer.
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