Risk Management

Market Risk, Liquidity Risk, and ALM System
Market risk refers to the probability of losses arising from changes in the value of asset holdings stemming from fluctuations in interest rates, stock and bond prices, and exchange rates. Within this category, interest rate risk refers to the potential for losses or lower profits caused by changes in interest rates. Price fluctuation risk means the potential for losses or declines in asset values arising from changes in securities prices. Exchange risk indicates the potential for losses or reduced yen-denominated cash flows due to changes in exchange rates.
   As financial techniques have become more advanced in recent years, market risk has assumed a greater magnitude and complexity, raising the need for reliable risk management. To manage such risk correctly, the Bank undertakes unified management combining on-balance-sheet transactions related to assets and liabilities with off-balance-sheet transactions. The Business Administrative Division quantifies market risk using risk point techniques according to basis point value. The Bank pursues profits while controlling market risk with predetermined risk parameters and loss limits.
   The ALM (Asset Liability Management) Committee has been set up as part of the Bank’s comprehensive risk management system. Based on interest rate forecasts and other factors, the Committee deliberates on and determines policies for securities investment and hedging, in an effort to ensure proper risk control and stable earnings.
   Liquidity risk refers to the possibility of an institution being unable to access necessary funds due to declining fund-raising capacity and insufficient liquidity, as well as the risk of losses associated with being unable to engage in transactions due to turmoil in the markets. To address liquidity risk, the Bank adopts a unified approach to yen and foreign currency-denominated fund-raising opportunities. Conditions related to capital flows are reported regularly to the ALM Committee, which discusses appropriate responses.

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