Due to the recent developments in the financial markets KAS BANK has taken supplementary measures to limit the risks for its clients and the bank itself. Via letters, News Flashes and Service Updates we have already informed our clients of these.
KAS BANK genuinely believes in transparency. That is why we have outlined the most important measures we have put in place, to complement our existing risk management rules and procedures. Should you require further information please do not hesitate to contact us.
Risks relating to securities lending
Securities lending and borrowing is indispensable to ensuring the flexible operation of the stock markets. In our role as clearing and settlement specialist, we have a leading position in this market. The current unrest has raised the risk profile of securities lending, and we have therefore taken action to limit the risks related to securities lending to an absolute minimum. Our clients can be certain that KAS BANK fully guarantees its securities lending programmes, i.e. these are indirect (principal). If desired, our clients can transfer to a direct alternative, whereby KAS BANK will act in the capacity of agent.
We have taken the measure not to accept financials as collateral. As soon as the markets demonstrate some structural stability, this measure will be reduced or removed, either entirely or in part.
Risks relating to liquidity
In the current market, liquidity is crucial. In addition, surplus liquidity must be put up in a safe manner. Due to the nature of its activities, KAS BANK is among the most liquid banks in the Netherlands.
- KAS BANK possesses a stable ‘iron stock’ of surplus liquidity above the threshold required by the Wet op het Financieel Toezicht. In addition, the bank does not have any repayment obligations that may affect this liquidity.
- KAS BANK applies a strict limit system to other banks which, if necessary, will be adapted in light of the most up-to-date information, on a daily basis. Simultaneously, we have amended the interest rates on clients’ credit balances, since standard benchmarks, such as Eonia and Libor, presently do not accurately reflect the real risks in the money markets.
- As an independent pure player we do not provide active asset management and therefore we do not run any related risk. Furthermore, our securities lending programmes do not incorporate any services related to money market funds, and we do not accept cash collateral nor do we participate in cash reinvestment programmes.
Risks relating to bankruptcy When a counterparty becomes insolvent it is very important that the collateral provided can be redeemed rapidly and outstanding transactions settled correctly.
- Counterparties are screened on a daily basis by our independent Risk Management Department. When necessary, limits will be restricted or completely cancelled. For some counterparties the advance has been set to zero, as a result of which no additional risk is run on these parties in the event of bankruptcy.
- In the event of bankruptcies, settlements are monitored separately and settled in consultation with clients. With the bankruptcy of Lehman Brothers we were able to conclude the entire settlement process for our clients without any problems. The clearing infrastructure, to which KAS BANK contributes as General Clearing Member in many markets, has functioned effectively to date. In cooperation with the European Central Securities Depositories (CSDs) and clearing houses, KAS BANK guarantees the admitted Trading Members.
We settle transactions in foreign currencies through a separate system, as a result of which positions are netted and the risk for both KAS BANK and indirectly for our clients is restricted, fitting within our general limit system.
Ring fencingAll stocks entrusted to KAS BANK, both within the Netherlands and internationally, are transferred to entities separate from the bank, whose only duty is the custody of these securities for the benefit of the underlying clients. Where technically possible, this also applies to derivatives.
Other issuesKAS BANK’s solvency amply exceeds the external objective of a BIS ratio of 12.5 percent. Reflecting the bank’s excellent financial position, our solvability ratio is the highest in the Dutch market. Furthermore, our BIS ratio is largely composed of tier-1 capital.
We would also like to stress that KAS BANK does not possess any high-risk assets. Nor do we act as an asset manager, trade on our own account or participate in cash reinvestment programmes. As a result, we expect to maintain our low risk profile.