Annual report 2010 - Dexia.com

Risk managementcalculation and risk measurement, as well as to guaranteeconsolidated measurement, reporting and monitoring of therisks and results of each of the activities for which they areresponsible.Established in the operational entities, local FMRM teams areresponsible for day-to-day activity, namely and inter alia theimplementation of policies and directives defined at Dexia SAlevel, but also local risk assessment and monitoring of risks at alocal level (computation of risk indicators, control of the limitsand triggers and so on), as well as reporting, reconciliationwith local strategic planning, accounting and IT systems.Each operational entity is also responsible for monitoring andreporting to local supervisory and regulatory bodies.CommitteesThe Market Risk and Guidelines Committee (MRGC) meetson a monthly basis and is responsible for a wide range oftopics such as: risk and statement of income trigger reportinganalysis (1) and related decisions, definition and revision oflimits, proposals for the approval of new products, discussionof guidelines, risk governance and standards, risk conceptsand measurement methodology and the quality of valuationprocesses.Ad hoc MRGC are organised to decide on specific issueswhen required from a business and/or a risk managementperspective.In addition to the monthly MRGC, a specific MRGC meetseach quarter to discuss risk and business reports associatedwith market activities.Dexia Market Risk Committee (DMRC) meets bimonthly andacts as supervisory committee of the MRGC.The Risk Policy Committee and Risk Management ExecutiveCommittee validate all major changes in risk profile or riskgovernance.Balance Sheet ManagementDefinitionBalance Sheet Management (BSM) covers all the structuralrisks of the banking book, namely, interest-rate risk, foreignexchangerisk, equity risk and liquidity risk.We refer to the part on Market Risks for detailed definitionsof structural and specific interest-rate risk, foreign-exchangerisk and equity risk.Liquidity risk measures the ability of the Group to meet itscurrent and future liquidity requirements, both expected andunexpected.OrganisationBalance Sheet Management (BSM) is the responsibility ofthe Finance support line and involves management of thestructural risks of the entire Group. Within Risk Management,(1) Statement of income triggers warn of a deterioration of results and areexpressed as a percentage of VaR limits: typically at 50%, 75% and 100% fortriggers 1, 2 and 3 and stop the activity at 300% of VaR.the role of BSM Risk is to define the risk framework in whichmanagement may be undertaken by BSM Finance (risk factors,limits, investment universe, guidelines), to validate modelsused in the effective management of that risk, to monitorexposure and to check compliance in relation to Groupstandards, to define the stress to be applied to different riskfactors, to challenge the management of the risk performedby the Finance support line and to ensure compliance of theframework with external regulations in force throughout theDexia Group.CommitteesAll BSM risks are managed via the Dexia SA Assets & LiabilitiesCommittee (ALCo) which meets monthly. ALCo decides onthe global risk framework, fixes limits, ensures consistency ofstrategy and delegates its implementation to local ALCo. ALCodecides globally on the level of exposure in line with the riskappetite defined by the Management Board, and validatesinternal transfer price mechanisms within the Dexia Group.Local ALCo manage risks specific to their balance sheet withinthe framework defined by and under the responsibility of theDexia SA ALCo.The Funding and Liquidity Committee (FLC), by delegationfrom the Group ALCo, centralises and coordinates the decisionmakingprocess in relation to liquidity associated issues. TheFLC is responsible for monitoring the Group’s liquidity position,its evolution and its cover by short, medium and long-termresources. It monitors the achievement of liquidity targetsfixed by the Management Board and elaborates funding,disinvestment and structuring strategies which will enable theGroup to overcome regulatory and internal stresses. Meetingbimonthly, the FLC takes all possible steps to improve theGroup’s liquidity profile.Operational riskDefinitionDexia defines operational risk as follows: operational risk isthe risk of financial or non-financial impact resulting frominadequate or failed internal processes, people and systems,or from external events. This definition includes IT, legal andcompliance risks, but excludes strategic risk.Dexia’s definition of operational risk is based on, but notrestricted to, the one used by the Basel Committee, whichfocuses on losses (negative financial impacts). Dexia policyalso requires the gathering of data on events generatingfinancial gains.OrganisationThe Operational Risk Management framework relies on stronggovernance with clearly defined roles and responsibilities.The Management Board, organised on a weekly basis, regularlyreviews the evolution of the risk profile of the different Groupactivities and takes the required decisions.The Risk Policy Committee, a strategic committee withrepresentatives of the Management Board, approves Groupwidepolicies. This committee is organised on a quarterlybasis.Management reportConsolidatedfinancial statementsAdditional information Annual financial statementsAnnual report 2010 Dexia79