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In a number of cases, monoline insurers are the counterparty to credit default swaps that hedge the credit riskof certain investments. In most cases, solvency objectives are the main reason for the existence of thesehedges rather than the credit quality of these investments. The impact of the ongoing deterioration of the U.S.mortgage market undermined the creditworthiness of monoline insurers in 2008, which adversely affected therating of these institutions. Counterparty risk relating to these monoline insurers arises because the value ofthe credit default swaps with these counterparties increases, due to the fair value of the underlying investmentsdecreasing, or because other insured investments can lead to payment claims against these insurers. In 2008,value adjustments amounting to € 393 million were recognised in profit and loss. A provision of € 260 millionafter tax has been made in respect of counterparty risk. At 31 December 2008, the remaining counterparty riskafter value adjustments for Rabobank Group amounted to € 1,729 million. In the first half of 2009, the neteffect of the portfolio being scaled down, on the one hand, and the formation of an additional provisions onthe other, which had an impact on earnings of € 179 million after taxation, is that the total provision fell to€ 1,034 million. The remaining counterparty risk as at 30 June 2009 amounted to € 737 million.See also Note 4.10 to the consolidated financial statements of Rabobank Group for the year ended31 December 2008 for a discussion of the impact of the financial crisis on Rabobank.Stock market fluctuationsFollowing a broad-based increase in global stock markets between 2002 and 2007, equity markets have beenadversely affected since the outbreak of the financial crisis in the second half of 2007. Stock prices droppedsignificantly in 2008 and in the first quarter of 2009. As share prices picked up from the second quarter of2009, stock exchanges globally recovered slightly in the first half of 2009. Uncertainty among investors andmarket volatility remain high. A further decline in the stock markets could adversely affect Rabobank Group’sresults of operations and its financial assets.Interest ratesChanges in prevailing interest rates (including changes in the difference between the levels of prevailing shorttermand long-term rates) can materially affect Rabobank Group’s results. For example, the relatively lowinterest rate risk environment in the Netherlands and Rabobank Group’s other major markets has drivengrowth in mortgage volumes, which is positive. However, a low interest rate environment also adverselyaffected Rabobank Group’s results, due to the structure of its balance sheet, Rabobank has a high level of nonandlow-interest bearing liabilities (its reserves, balances on payment accounts and current accounts).Generally, a sustained period of lower interest rates will reduce the yields on the assets that are financed withthese liabilities. Conversely, rising interest rates should, over time, increase investment income but may, at thesame time, reduce the market value of pre-existing investment portfolios. Rising rates can also lead to higheror lower interest margins depending on whether Rabobank Group’s interest-earning assets reprice at a fasterrate than interest-bearing liabilities or the degree to which the spreads on assets or liabilities narrow or widen.As discussed under “Risk Management — Interest rate risk”, Rabobank Group generally takes a limitedinterest rate position that is managed within strict limits and designed to take advantage of expected changesin interest rates and the yield curve.Critical accounting policiesThe accounting policies that are most critical to Rabobank Group’s business operations and the understandingof its results are identified below. In each case, the application of these policies requires Management to makecomplex judgements based on information and financial data that may change in future periods, the results ofwhich can have a significant effect on Rabobank Group’s results of operations. As a result, determinationsregarding these items necessarily involve the use of assumptions and judgements as to future events and aresubject to change. Different assumptions or judgements could lead to materially different results. See the254