ING Direct 2015 Annual Report Download - page 208

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
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 must be
manageable. Also refer to Note 38 of the financial statements in which ‘Assets by contractual maturity’ are shown.
• Home/host regulatory liquidity limits must be pro-actively complied with.
• The time-to-survive in a funding stress situation must extend over defined period, also depending on the level of stress applied.
• Funding of all longer-term assets and investments must be done by stable and longer-term liabilities.
• Geographical dependencies with respect to intra-group funding are to be limited.
• Diversification must be in place of funding profile, across funds providers, instrument types, geographic markets, tenors and
currencies.
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
funding short-term assets. The bank aims to fund all longer term assets and investments by stable and longer term liabilities. Next to
this, ING Bank monitors exposures in major currencies such as the USD. Monitoring and control of this funding is effectuated through a
dedicated USD funding and liquidity risk framework.
ING Bank reviews its funding plan on at least a quarterly basis, assessing market developments and funding requirements.
Intraday liquidity management
The objective of managing intraday liquidity and its risks at ING is twofold: it is focused on preventing damage to the institution’s own
liquidity position, and, in light of its role in global financial markets, ING also takes into account the potential damage to other parties
which can arise through chain effects in payment and securities transactions. Intraday liquidity management is managed through the
intraday risk appetite statement, by setting amongst others monitoring metrics and triggers on daily net negative liquidity positions
and levels of payments outflows.
Collateral position management
The objective of the Collateral Management is to ascertain that ING Bank can at all times meet collateral requirements for ING’s
collateral needs. ING Bank maintains a liquidity buffer existing of cash, cash equivalents and other highly liquid unencumbered assets
to facilitate this. Tactical (short term) management of the liquidity buffer is performed, by increasing or decreasing the liquidity
coverage with collateral transformation by execution of repos, in order to meet internal and regulatory requirements. Reporting and
analysis is performed, providing availability of collateral for emergency financing, its eligibility and its route to cash in an efficient
manner.
Liquidity buffers
The liquidity buffer ING Bank holds can be seen as the short-term part of the counterbalancing capacity, i.e. the total of available
sources and measures within ING to generate liquidity, and serves as a cushion for liquidity needs under normal and stressed
conditions.
The size and composition of the Liquidity buffer depends on ING Bank’s Risk Appetite (risk tolerance) and regulatory liquidity
standards. In the buffer, only assets that are included that are ‘unencumbered’ and freely available for liquidity purposes.
Bank Treasury ensures functional management of all liquidity buffers within ING Bank, both buffers at Bank level and buffers at local
business unit level.
The liquidity buffer is held as an insurance against a range of stress scenarios, covering the additional need for liquidity that may arise
over a defined short period of time under stress conditions. ING’s minimum standards for liquidity buffers are described below:
• When local regulatory rules require so, local liquidity buffers can be established. Although locally established, these buffers must
be centrally functionally managed by the BT function.
• The buffer must be adequate in relation to the contractual and expected expiry calendars and other expected or planned
developments.
• The size of the buffers is supported by estimates of liquidity needs performed under the Bank’s or business entity’s stress testing
and be aligned with the liquidity risk appetite.
• The liquidity buffer is composed of cash and core assets that are eligible for the Liquidity Coverage Ratio (LCR) and/or highly
marketable, which are not pledged to payment systems or clearing houses. For longer term buffer purposes, a broader set of liquid
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