BBVA in 2012
BBVA in 2012
BBVA in 2012
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Risk <strong>in</strong> market unitsFor yet another year, <strong>2012</strong> was characterized by the cont<strong>in</strong>u<strong>in</strong>g economic crisis <strong>in</strong> Spa<strong>in</strong>, withcont<strong>in</strong>ued market <strong>in</strong>stability and pressures on prices. This has caused cont<strong>in</strong>u<strong>in</strong>g market <strong>in</strong>stabilityand pressures on prices. Aga<strong>in</strong>st this backdrop, the function of risk control <strong>in</strong> market activities hastaken on a special importance.The activity of each of the Group’s trad<strong>in</strong>g desks is controlled and monitored <strong>in</strong> terms of thepossible impact of negative market conditions, both under ord<strong>in</strong>ary circumstances and <strong>in</strong>situations of heightened risk factors.Market risk <strong>in</strong> market activitiesThe basic measurement model used to assess market risk is Value at Risk (VaR), whichprovides a forecast with a 99% probability of the maximum loss that can be <strong>in</strong>curred bytrad<strong>in</strong>g portfolios <strong>in</strong> a one-day horizon, stemm<strong>in</strong>g from fluctuations <strong>in</strong> equity prices, <strong>in</strong>terestrates, foreign exchange rates and commodity prices. In addition, for certa<strong>in</strong> positions, otherrisks also need to be considered, such as credit spread risk, basis risk, volatility and correlationrisk. The VaR is calculated by us<strong>in</strong>g a historical period of 2 years of observation of the riskfactors.Currently, <strong>BBVA</strong>, S.A. and <strong>BBVA</strong> Bancomer have been authorized by the Bank of Spa<strong>in</strong> to usetheir <strong>in</strong>ternal model to determ<strong>in</strong>e capital requirements deriv<strong>in</strong>g from risk positions <strong>in</strong> theirtrad<strong>in</strong>g book, which jo<strong>in</strong>tly accounts for 80-90% of the Group’s trad<strong>in</strong>g-book market risk.Furthermore, and follow<strong>in</strong>g guidel<strong>in</strong>es established by Spanish and European regulators, <strong>BBVA</strong>has created additional metrics to comply with the regulatory requirements issued by theBank of Spa<strong>in</strong>. The new market risk measures for the trad<strong>in</strong>g book <strong>in</strong>clude the calculation ofthe stressed VaR (to quantify the risk level <strong>in</strong> extreme historical conditions), the quantificationof non-perform<strong>in</strong>g risks, and of downgrade risks <strong>in</strong> the rat<strong>in</strong>g of some positions held <strong>in</strong> theportfolio, such as bonds and credit derivatives; they also quantify securitization and correlationportfolio charges, us<strong>in</strong>g the standard model.The market-risk limits model currently <strong>in</strong> force consists of a system of VaR (Value at Risk) andeconomic capital limits and VaR sub-limits, as well as stop-loss limits for each of the Group’sbus<strong>in</strong>ess units. The global limits are proposed by the corporate GRM area and approved bythe Executive Committee on an annual basis, once they have been submitted to the Board’sRisk Committee. This limits structure is developed by identify<strong>in</strong>g specific risks by type, trad<strong>in</strong>gactivity and trad<strong>in</strong>g desk. The market risk units ma<strong>in</strong>ta<strong>in</strong> consistency between the limits. Thissystem of limits is supplemented by measures of the impact of extreme market movementson risk positions held.The stress analysis is currently carried out based on historical crisis scenarios. The referencehistorical scenario today is the collapse of Lehman Brothers <strong>in</strong> 2008. Economic crisisscenarios are also prepared, which are updated on a monthly basis and drawn up ad hoc foreach one of the Group’s trad<strong>in</strong>g floors. These scenarios identify the most significant marketrisk positions and assess the possible impact that fluctuations <strong>in</strong> market variables may haveon such positions.116 Risk management