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ePaper created 2012-04-20, 15:08:32 | version 1.23.0
44 Management Report – münchener Hypothekenbank eg l annual Report 2011 MünchenerHyp uses the value-at-risk (VaR) figure to identify and limit credit spread risks. The VaR figure is calculated based on historical simulation. The current (daily) credit spread stress scenarios are: >> Parallel shifts: All credit spreads are shifted up and down by 100 base points. The worst result of the two shifts is used for calculation purposes. >> Historical simulation of the collapse of the investment bank Lehman Brothers: the scenario assumes an immediate change in spreads based on the changes that occurred one working day before the collapse of the investment bank until four weeks after this date. >> Worst Case Scenario: The maximum widening of spreads for all classes of securities in the Bank’s portfolio since January 2, 2007 is calculated. The average value of these calculations is used as the parallel shift to the respective class of security. >> Flight into government bonds: The scenario simulates a sig- nificantly visible aversion to risk that was previously seen in the markets. Spreads for riskier classes of paper widen while spreads for safer government bonds narrow. >> Worst Case Scenario up to the collapse of Lehman Brothers: this scenario is derived from the Worst Case Scenario. The time period used here starts on January 2, 2007 and ends one banking work day before the collapse of the investment bank Lehman Brothers. The maximum credit spread VaR for the entire portfolio using a 99.5 percent level of confidence and holding period of one year was € 442 million, the average figure noted in the previous year was about € 398 million. The maximum credit spread VaR for current assets (only third- party securities) using a 95 percent level of confidence and holding period of one year was € 3 million, the average figure noted in the previous year was about € 2 million. Liquidity risks Liquidity risks include the following risks: >> inability to fulfil payment obligations when they come due (liquidity risk in the narrow sense), >> inability to procure sufficient liquidity when needed at anticipated conditions (refinancing risk), >> inability to terminate, extend or close out a transaction, or only be able to do so at a loss, due to insufficient market depth or market turbulence (market liquidity risk). MünchenerHyp differentiates between short-term solvency protection and mid-term structural liquidity planning. Short-term assurance of solvency The purpose of short-term assurance of solvency is to ensure that the Bank is fully able to meet (payment willingness) its required payment obligations as agreed on a daily basis, even during stress situations. In meeting this obligation the Bank fully implements all of the applicable legal supervisory require- ments regarding liquidity reserves that must be held by banks. In doing so, MünchenerHyp has categorised itself as a capital market oriented institution per the terms of MaRisk, and there- fore also fulfils requirements pursuant to BTR 3.2. MaRisk distinguishes between four different scenarios, which were implemented accordingly: 1) Base Case: corresponds to the bank’s control case. 2) Bank stress: The institutions‘ reputation deteriorates, for example, due to high balance sheet losses. 3) Market stress: Short-lived event that affects a segment of the financial markets. Examples of this are the Sep- tember 11, 2001 terror attack (9/11), or the financial market/ sovereign debt crisis. 4) Combined stress: Simultaneous occurrence of bank and market stress. MaRisk demands that an institution must be able to meet the liquidity requirements arising from this scenario for at least 30 days. Varying model assumptions for all important cash flow were derived for each scenario; for example accessing our liquidity lines or guarantees (Aval), the temporary utilisation of previously made lending commitments, or the development of collateral. Beyond this, all securities were divided into different liquidity categories. Based on this, we determined the volume that would be sold, over which time period – or could be used for a repo transaction – to generate additional liquidity to meet the re- quirements for each individual scenario. Legal restrictions, like the Pfandbrief Act’s 180 day rule, were always observed in all