Annual Report 2012 - Bank Sarasin

capital, and the credit quality of the
respective counterparty. Ultimately it is
up to the Central Credit Committee (CCC),
following an application by the Risk Office
(RIOF), to approve the loan and decide on
the amount of credit granted. In parallel
with the CCC decision, the limits must
also always be approved by the Group
Oversight Committee (GOC) of J. Safra
Sarasin Holding Ltd based on its own
credit assessment. This process does not
apply to credit limits for the Treasury Bond
Portfolio, which (as mentioned previously)
are assessed at the request of RIOF both
by Bank Sarasin’s Investment committee
and the holding company's GOC. As a
general rule, the emphasis when
conducting business on the interbank
market is on the quality of counterparties,
with consideration given to risk-reduction
measures wherever possible.
Concentrated risks
Concentrations of risk are monitored on a
by-counterparty basis and are based on
the provisions of the Swiss Ordinance on
Capital Adequacy and Risk Diversification
for Banks and Securities Traders (ERV). A
group of related counterparties is
regarded as a single counterparty.
Concentrations of risk are risk-weighted.
The upper limit per counterparty is 25% of
the eligible capital calculated in
accordance with the statutory
requirements. While client receivables are
mostly covered by readily realisable
collateral and therefore do not represent
concentrations of risk in the regulatory
sense, the Risk Office (RIOF) checks prior
to entering into positions involving nonclients
that the critical size of the
concentrations is not exceeded.
Liquidity risk
The liquidity risk essentially refers to the
danger of the bank being unable to meet
its payment obligations or failing to meet
the requirements imposed by banking
regulations. On the other hand there is a
risk of a lower return in the case of
holding excessive liquidity.
Bank Sarasin’s Treasury Committee is
responsible for monitoring liquidity. It is
composed of the Group Treasurer, the
CFO, the Head of the Trading & Family
Offices division, representatives of the
specialist departments and of the Risk
Office, and usually meets every two
weeks. The prime objective is to
guarantee the Bank’s ability to meet its
payment obligations at all times and to
make sure legal requirements for liquidity
are complied with.
A key task of the committee is to monitor
all the relevant liquidity risk factors. These
include money flows between subsidiaries
and the parent, inflows and outflows of
client funds and changes in the availability
of liquidity reserves.
Especially in times of crisis, unsecured
borrowing from third-party banks may turn
out to be extremely difficult. In its financial
investments Bank Sarasin therefore keeps
significant holdings of liquid bonds that
are eligible for repo transactions and
which can be used at any time to generate
liquidity. As a supporting strategy, target
bandwidths are set for surplus coverage of
the minimum reserve as well as for
minimum liquidity. These are actively
monitored and adequate measures
initiated if liquidity falls below the
specified targets.
After the closing of the acquisition, a new
internal liquidity requirement was also
defined which is geared towards the
elements of both the current (Liquidity II)
and future regulatory rules (Liquidity
Coverage Ratio).
Operational liquidity management in the
day-to-day running of the business is
handled by the Trading Money Market
department (part of the TFO division). Its
tasks include controlling payments,
planning the anticipated cash flows and
securing liquidity in the day-to-day
business.
Bank Sarasin & Co. Ltd, Annual Report 2012 | 67