RBS 2009 Annual Report Download - page 128

Business review continued
RBS Group Annual Report and Accounts 2009126
Capital* continued
Risk coverage
The main risks facing the Group are shown below.
Risk type Definition Features
Credit risk The risk arising from the possibility that the Group Loss characteristics vary materially across portfolios.
(including country will incur losses owing to the failure of customers to
and political risks) meet their financial obligations to the Group. Significant correlation between losses and the
macroeconomic environment.
Concentration risk - potential for large material losses.
The risk arising from country events. Country risks correlated with macroeconomic
developments.
Country vulnerabilities changing structurally in the
aftermath of the financial crisis.
Funding and liquidity risk The risk of being unable to meet obligations Potential to disrupt the business model and stop normal
as they fall due. functions of the Group.
Market risk The risk that the value of an asset or liability may Potential for large, material losses.
change as a result of a change in market risk factors.
Significantly correlated with equity risk and the
macroeconomic environment.
Potential for losses due to stress events.
Insurance risk The risk of financial loss through fluctuations in the Frequent small losses.
timing, frequency and/or severity of insured events,
relative to the expectations at the time of underwriting. Infrequent material losses.
Operational risk The risk of financial, customer or reputational loss Frequent small losses.
resulting from inadequate or failed internal processes
or systems; from improper behaviour; or from Infrequent material losses.
external events.
Regulatory risk The risks arising from regulatory changes Risk of regulatory changes.
and enforcement.
Compliance with regulations.
Potential for fines and/or restrictions in
business activities.
Other risk The risks arising from reputation risk. Additional regulation can be introduced as a result of
other risk losses.
Failure to meet expectations of stakeholders.
Pension risk is the risk that the Group may have to Pension risk arises because of the uncertainty of
make additional contributions to its defined benefit future investment returns and the projected value of
pension schemes. schemes’ liabilities.
* unaudited