Wells Fargo 2013 Annual Report Download - page 93

Table 46: Trading 1-Day 99% VaR Metrics
Quarter ended
December 31, 2013 September 30, 2013
(in millions)
Period
end Average Low High
Period
end Average Low High
VaR Risk Categories
Credit $ 32 33 30 36 31 32 29 34
Interest rate 20 19 13 25 25 24 17 31
Equity 9 6 4 9 6 7 6 8
Commodity 1 2 1 3 3 3 2 4
Foreign exchange - 1 - 2 1 1 1 2
Diversification benefit (1) (38) (40) (47) (49)
Total VaR 24 21 19 18
(1) The period-end VaR was less than the sum of the VaR components described above, which is due to portfolio diversification. The diversification effect arises because the
risks are not perfectly correlated causing a portfolio of positions to usually be less risky than the sum of the risks of the positions alone. The diversification benefit is not
meaningful for low and high metrics since they may occur on different days.
Model Risk Management Internal market risk models are
governed by our Corporate Model Risk policies and procedures,
which include model validation. The purpose of model validation
includes ensuring the model is appropriate for its intended use
and that appropriate controls exist to help mitigate the risk of
invalid results. Model validation assesses the adequacy and
appropriateness of the model, including reviewing its key
components such as inputs, processing components, logic or
theory, output results and supporting model documentation.
Validation also includes ensuring significant unobservable
model inputs are appropriate given observable market
transactions or other market data within the same or similar
asset classes. This ensures modeled approaches are appropriate
given similar product valuation techniques and are in line with
their intended purpose. The Corporate Model Risk group
provides oversight of model validation and assessment
processes.
All internal valuation models are subject to ongoing review
by business-unit-level management, and all models are subject
to additional oversight by a corporate-level risk management
department. Corporate oversight responsibilities include
evaluating the adequacy of business unit risk management
programs, maintaining company-wide model validation policies
and standards and reporting the results of these activities to
management and CMoR.
Regulatory Market Risk Capital Effective January 1, 2013, U.S.
banking regulators adopted “Risk-Based Capital Guidelines:
Market Risk” as the regulations covering the calculation of
market risk regulatory capital. The market risk capital rule,
commonly known as Basel 2.5, requires banking organizations
with significant trading activities to adjust their capital
requirements to better account for the market risks of those
activities. The rule substantially modified the determination of
market risk-weighted assets, and implements a more risk
sensitive methodology. The Basel 2.5 regulatory market risk
capital rule introduced new measures of market risk including
stressed VaR, an incremental risk charge, and updates to
standard specific risk charges. The market risk capital rule was
reflected in the Company’s calculation of risk-weighted assets
upon initial adoption in first quarter 2013.
Table 47 summarizes the market risk-based capital
requirements charge and market RWA as of December 31, 2013,
in accordance with the Basel 2.5 market risk capital rule.
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