Annual report 2009 - Santander

171C. Structural exchange-rate risk/ Hedging of results/Structural equityThese activities are monitored by position measures, VaR andresults.D. Additional measuresBack-testingBack-testing is an a posteriori comparative analysis betweenValue at Risk (VaR) estimates and the “clean” daily resultsactually generated (results of the portfolios at the end of the dayvalued at the next day’s prices). The purpose of these tests is toverify and measure the precision of the models used to calculateVaR.The back-testing analysis carried out by Grupo Santandercomplies, as a minimum, with the BIS recommendationsregarding the verification of the internal systems used tomeasure and manage market risks. In addition, back-testingincludes the hypothesis test: tests of excess, normality,Spearman rank correlation, measures of average excess, etc.The valuation models are fine-tuned and tested regularly by aspecialized unit.Coordination with other areasEvery day work is carried out jointly with other areas to offsetthe operational risk. This entails the conciliation of positions,risks and results.4.3 Control systemA. Definition of limitsThe process of setting limits takes place after the year-endbudgeting process, and is the means used by the Group toestablish the level of equity that each activity has available. Theprocess of definition of limits is dynamic, and responds to thelevel of risk appetite considered acceptable by seniormanagement.B. Objectives of the structure of limitsThe structure of limits require a process that takes into accountthe following aspects, among others:• Identify and define, efficiently and comprehensively, the maintypes of risk incurred so that they are consistent with themanagement of business and with the strategy.• Quantify and inform the business areas of the risk levels andprofile that senior management believes can be assumed, inorder to avoid undesired risks.• Give flexibility to the business areas to build risk positionsefficiently and opportunely according to changes in themarket, and in the business strategies, and always within therisk levels regarded as acceptable by the Entity.• Allow the generators of business to take prudent risks butsufficient to attain the budgeted results.• Define the range of products and underlying assets with whicheach unit of Treasury can operate, bearing in mind featuressuch as the model and valuation systems, the liquidity of thetools used, etc.4.4 Risks and results in 2009A. Trading activityQuantitative analysis of var in 2009The Group’s risk 4 performance with regard to trading activity infinancial markets during 2009, as measured by VaR, was asfollows:VaR performance in 2009Million euros48,044,040,0max (45,1)36,032,028,024,020,0 min (21,9)1 Jan. 0927 Jan. 0922 Feb. 0920 Mar. 0915 Apr. 0911 May. 096 Jun. 092 Jul. 0928 Jul. 0923 Aug. 0918 Sep. 0914 Oct. 099 Nov. 095 Dec. 0931 Dec. 09(4) Including Banesto and Sovereign. Venezuela stopped being included in the perimeter as of April 1.Risk management Annual Report 2009