A4 für Copyshop GB.indd - Bayerische Landesbank

106 Report on the Bank and the Group
} Bank-wide
controlling concept
} Organisational
basis of risk
management and
controlling
Risk report
Risk monitoring and control
BayernLB employs uniform procedures to control and monitor its risks throughout all
of its business areas. The global objective is to optimise the Bank’s risk / return profile
for all of the various types of risk. Responsibility for risk identification, analysis and
assessment lies with the Risk Office Support Operations, which is also charged with
attending to, processing, monitoring and controlling risks on an ongoing basis.
The organisational framework underlying the Bank’s risk controlling system takes into
account the Minimum Requirements for the Credit Business of Credit Institutions (MaK)
and the Minimum Requirements for the Trading Activities of Banks (MaH). During the
period under review, this framework was developed further. Thus, in 2004, responsibil-
ity for credit and collateral administration was delegated to the Risk Office Support
Operations.
Risk management principles are defined by the enhanced credit policy. This is supple-
mented by the credit risk strategy and specific policies governing items such as risk
provisioning.
The credit risk strategy defines standards for credit business as well as regulations
governing the Bank’s handling of credit and counterparty risks, on the basis of general
legal and supervisory terms and conditions. In particular, it sets key parameters for the
credit portfolio, and defines the Bank’s principles for risk capital controlling (focusing
on risk / return aspects). The Board of Management reviews the credit risk strategy on
a yearly basis.
Economic capital, which is measured using economic benchmarks, is becoming increa-
singly important for controlling and limitation purposes, as is the Value at Risk (VaR)
model. VaR is a method used for quantifying the risk potential that is offset by the
capital allocated for risk hedging in the risk capacity calculation.
The risk potential arising from country, market and operational risks is calculated,
limited and controlled using the VaR method. Up to now, counterparty risks were cont-
rolled by limiting the risk assets provided and using the expected losses as a basis. At
the same time, important experience was gathered within the context of pilot VaR cal-
culation projects. In the future, the Bank will also employ the CreditRisk+ method to
control counterparty risks. For this method, in line with its target rating, BayernLB
assumes a confidence level of 99.96 percent (with a one-year holding period).
From the beginning of 2005, the economically assessed risk capital requirement has
been offset by the cover funds available as part of an ongoing monitoring process. This
is initially being carried out as a test phase. A buffer determined by the Board of Man-
agement helps to cover unusual market fluctuations (stress tests) and further risks that
fall outside the scope of the concept.