FMO maintains a strong capital position by means of an integrated capital adequacy planning and control framework, regularly reviewed by the ALCO. This framework is meant to support our targeted and current AAA rating. FMO has an external and internal ratio to express its capital position. The external ratio is calculated based on the standardized approach of Basel II regulations and takes credit, market and operational risk into account. The internal ratio is based on an Economic Capital model in which the most important element is credit risk. Economic Capital for credit risk is calculated based on Basel’s Internal Ratings Based (IRB) methodology for measuring credit risk. FMO’s rating methodology forms the basis for these calculations. Other risks in FMO’s Economic Capital framework are operational, market, interest rate, concentration, reputation and model risk. Economic Capital is calculated using a conservative confidence interval of 99.99%.
FMO’s actual capital position in 2012 was more prudent than required under the standards that we set internally and the requirements put by the Dutch Central Bank.