Annual report 2008
Binck Bank
- Report of the Management Board
- Risk management under Basel II and Pillar III disclosure
- In-control statement
- Personnel and organisation
- Corporate social responsibility
Risk management under Basel II and Pillar III disclosure
Calculation of capital requirements under Pillar I and Pillar II Solvency ratios under Pillar I & Pilar II BinckBank's capital structure as at 31 December 2008 Calculation of equity capital and actual Tier 1 capital Equity capital and actual Tier 1 capital
3. Capital structure
BinckBank holds capital to cover risk. The quantity and quality of the capital held in reserve by BinckBank is also determined on the basis of International Financial Reporting Standards (IFRS) and rules such as those laid down in the European CRD guidelines, which have been implemented in the Netherlands in the Financial Supervision Act (Wft).
Calculation of capital requirements under Pillar I and Pillar II The minimum level of capital required under Pillar I (expressed by the BIS ratio) for banks is 8%. Basel II allows for different approaches to the implementation of the Pillar I requirements in respect of credit risk, market risk and operational risk. BinckBank adopts the standardised approach to credit risk and market risk, using the risk weightings and credit risk mitigation techniques indicated by the regulator. In respect of operational risk, BinckBank adopts the 'basic indicator approach', holding capital amounting to 15% of revenues for the previous financial year (in light of the rapid growth) instead of the average for the past three years as normally required under Basel II. The second pillar of the new Basel II accord addresses the process by which banks assess the adequacy of their internal capital, the Internal Capital Adequacy Assessment Process (ICAAP), and the process is assessed by the regulator, the Supervisory Review and Evaluation Process (SREP). The internal capital calculated by BinckBank follows from the ICAAP (ICAAP capital). The ICAAP capital is the product of the internal capital calculations by BinckBank for all risks that are relevant to the business. For the 2008 financial year, the ICAAP capital ratio for BinckBank was 12%.
To determine the ICAAP capital, BinckBank uses the complementary method, which involves holding capital for the complementary risks identified by BinckBank, such as business risk, interest-rate risk, concentration risk and settlement risk, in addition to the minimum capital requirements prescribed under Pillar I. The SREP capital, which is reached through dialogue between the Nederlandsche Bank (DNB) and BinckBank, is the capital which the external regulator considers necessary. The external regulator may increase the ICAAP capital by applying a prudential uplift. BinckBank submitted its 2008 ICAAP report to DNB in January 2009, but DNB is not expected to conduct its Supervisory Review and Evaluation Process (SREP) until March 2009, so BinckBank cannot say at this stage whether the regulator will apply a prudential uplift.
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