Balance Sheet at 31 December 2010 of BBVA

MARKET RISK:
This risk arises as a consequence of activity on the markets, using financial instruments whose
value may be subject to changes in market conditions, reflected in changes in the different assets and
financial risk factors. The risk may be mitigated or even eliminated by hedging with other products
(assets/liabilities or derivatives) or undoing the open position/transaction. There are three key risk
factors affecting market prices:
Interest-rate risk: This arises from changes in the time structure of market interest rates for the different
currencies.
Exchange-rate risk: this arises from changes in the exchange rates between difference currencies.
Price risk: this arises from changes in market prices, either in factors specific to the instrument itself
or in factors impacting all the instruments traded on the market.
There are also other risks that must be considered for certain positions: credit spread risk, base risk,
volatility or correlation risk.
The basic variable used to measure and control the Group’s market risk is Value-at-Risk (VaR). This
estimates the maximum loss, at a certain confidence level, that could occur on the market positions of
a trading book for a specific time horizon. The Group calculates VaR with a 99% level of confidence
and a time horizon of 1 day. The current model for market risk limits consists of a global structure
encompassing economic risk of capital (ERC) and the VaR and the VaR sub-limits and the stop-loss
limits for each of the Group's business units. The global limits are approved each year by the
Executive committee, at the proposal of the Central Unit for Risks in Market Areas, after hearing the
Risks Committee presentation. The limits structures is drawn up by identifying specific risks by type,
activities and desks. The coherence between global and specific limits and VaR sub-limits and delta
sensitivity is safeguarded by the market risk units. This is supplemented with an analysis of the impact
on the income statement by stress testing risk factors, considering the impact of past financial crises
and economic scenarios that could come being in the future. In order to consider the performance of
the business units over the year, the accumulation of negative results is linked to a reduction in the
VaR limits established. To anticipate the application of this dynamic methodology and mitigate effects
of adverse conditions, the structure is complemented with stop loss limits and warning signals that
automatically activate procedures to deal with situations that could have a potential negative impact on
market activities. The model for measuring market risks incorporates back-testing and
measurements of the impact of extreme market movements on risk positions maintained (stress
testing). At present stress testing is done on historic crisis scenarios and on impacts based on
crisis scenarios drawn up by the Group’s Research Department.
STRUCTURAL RISKS:
Structural Interest Risk.
Managing the interest risk on the balance sheet aims to keep the Group's exposure to changes of
market interest rates at levels in keeping with its risk profile and strategy. For this, the ALCO
develops management strategies to maximise BBVA's economic value, safeguarding the recurrent
generation of earnings through the net interest income. It not only considers market expectations, but
also ensures that the exposure levels match the risk profiles defined by the Group management bodies
and that an equilibrium is maintained between the expected earnings and the level of risk borne. The
implementation of a system of transfer rates that centralises the Group's interest-rate exposure on the
ALCO books helps to foster a suitable risk management of the balance sheet. The control and
monitoring of the structural interest rate risk is done in the Risks Area. Acting as an independent unit,
this area guarantees proper separation between risk control and risk management functions, in
compliance with the Basel Committee on Banking Supervision recommendations. These functions
include the design of measurement models and systems and the development of monitoring, reporting
and control policies. Risks carries out monthly measurements of the structural interest rate risk, which
support Group management. It is tasked with controlling and analysing the risk, and its work feeds into
WARNING: The English version is only a translation of the original in Spanish for information purposes. In case of a discrepancy,
the Spanish original prevails.