ING Direct 2015 Annual Report Download - page 194

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
Real estate price risk includes the market risks in both the real estate investment and the development portfolio of ING Wholesale
Banking. The economic capital for real estate price risk is calculated by stressing the underlying market variables.
While aggregating the different economic capital market risk figures for the different portfolios, diversification benefits (based on
stressed correlations) are taken into account as it is not expected that all extreme market movements will appear at the same
moment.
Risk profile
The market risk Economic Capital is higher than the Regulatory Capital primarily due to the inclusion of the interest rate risk in banking
books in Economic Capital. The main drivers of the Market Risk Economic Capital are the linear interest rate risk positions of Capital
Investments and the strategic Equity Investments in the banking books.
Economic Capital
Regulatory Capital
2015
2014
2015
2014
Trading
307
371
665
745
Interest rate risk in the banking books
3,555
3,344
Foreign exchange
894
490
106
113
Real Estate
369
539
Equity Investments*
3,456
2,625
Market risk
8,581
7,369
771
858
* Regulatory capital for equity investments are reported under credit risk regulatory capital.
Year-on-year variance analysis
During 2015, market risk economic capital increased from EUR 7.4 billion to EUR 8.6 billion. The main driver of the increase is the
increased value of the Bank of Beijing equity stake which increased both the Equity Investments exposure as well as increased FX risk
due to the enlarged CNY mismatch position. The decrease in Real Estate is mainly resulting from the run-off exposure of Real Estate
Development. The reported risk figures for the other risk types remained stable.
Market risk in banking books
ING Bank makes a distinction between trading and banking (non-trading) books. Positions in banking books originate from the market
risks inherent in commercial products that are sold to clients, the Bank Treasury exposures and from the investment of own funds
(core capital). Both the commercial products, and the products used to hedge market risk exposures in these products are intended to
be held until maturity, or at least for the long-term. ING Bank distinguishes the following types of market risk in banking books:
• Interest Rate Risk, including customer behaviour risk;
• Credit Spread Risk;
• Foreign Exchange (FX) Risk;
• Equity Price Risk; and
• Real Estate Price Risk.
Economic and Regulatory Capital by risk type
ING Bank Annual Report 2015 192